Credit Card Debt Forgiveness Programs – How To Qualify And Eliminate Credit Debt

It is estimated that an average American has about USD 40

,000 in credit card debt. On a national level this amounts to about 7 billion dollars in credit card debt each month. Most people somehow manage to pay only the minimum amount each month. However, this strategy is not exactly going to help you if you wish to make some serious reductions to your debt. The very high interest rates may force you to keep paying the debt for the rest of your life. Due to the large sum of credit card debt, even the Federal Government has been forced to revise programs for credit card debt help. Credit card debt forgiveness program is one such program that aims to take off the financial burden off the shoulders of those crippled by credit card debt.

Credit Card Debt Forgiveness Plan

Oftentimes, people spend more than what they can afford. Thus, credit card debt keeps on piling up. Sometimes a point comes, when the person is no longer in a position even to pay off the monthly credit card payment. As a result, the debt quickly mounts up and full debt repayment looks like a distant dream for both creditor as well as debtor. In such cases, people often resort to credit card debt solutions, in a hope of getting out of credit card debt. There is really no dearth of credit card debt consolidation companies which promise substantial write offs on your debt. Usually, the amount that can be waived from your debt mostly depends upon your negotiation skills and the readiness of your creditor. If you decide to settle credit card debt yourself you may even manage to squeeze out up to 50% waiver on your debt. However, if you are unsure of how to handle the situation you may employ a credit card debt settlement agency to run the matters for you. However, make sure they are legitimate and do serious business.

Credit card debt forgiveness program works for the credit card company as well as the debtor. The debtor can save himself from going bankrupt and jeopardizing his credit report forever, while the company tries to amass as much fortune as they can before the debt goes bad. In case of bankruptcy the company ends with nothing. Hence, they might prefer extracting as much amount as possible if complete debt repayment is not possible. However, becoming eligible for credit card debt forgiveness is not something to celebrate about. There are certain risks involved and the implications are too many.

Credit Card Debt Forgiveness Program Risks

Most people do not entertain any correspondence from their creditors after they have been granted debt forgiveness. They often end up trashing the form 1099-C, which is sent by the creditors. This is the first mistake that might land you in some serious trouble with the Internal Revenue Service (IRS). When you repay the debt amount to your creditor, your creditor becomes liable for tax on that amount. When a portion of that debt is waived off, you become the beneficiary of that amount. In that case, the onus of tax repayment is passed upon you. An example will enable you to understand this situation better. Suppose your initial debt was USD 10000 and you got a write off for USD 3000, then your impending debt is USD 7000. In that case, you end up with USD 3000, which should have actually been your creditor's money. Hence, you become liable for paying whatever tax amount IRS inflicts upon USD 3000. Failure to do so, may subject you to IRS audit, penalties, etc. Hence, do not forget to file form 1099-C after your debt has been forgiven.

An exemption from tax is available in certain conditions. People who have gone bankrupt need not pay the tax amount. Similarly, if your financial affairs indicate insolvency (more liabilities than assets) then also you can request for exemption of tax. In that case, you might have to file IRS form 982 along with the 1099-C should you qualify for exemption from tax. Another serious implication of credit card debt forgiveness program is that once you enroll for that, your credit score plummets by 70 to 140 points. This may hamper your chances of getting credit in the future.

Credit card debt mostly arises as a result of inability to manage your budget. People who request for credit card debt forgiveness program never learn to manage their debts. Hence, think twice before you enroll for such as programs and resort to it only when you run out of other credit score friendly options.

Credit Card Debt Forgiveness Programs How To Qualify And Eliminate Credit Debt

By: Caleb Byron

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