What Is Up With Debt Forgiveness?
The idea of debt forgiveness or getting your debt forgiven sounds like a wonderful thing. In fact, for many it seems like a dream come true. Such an idea has been attempted in little ways for a long time, with unforeseen and unspoken consequences that can end up truly costing you in the long run. On a grander scale, it’s something that has been tried in certain countries and met with mixed reactions.
What’s The Catch
The fact is, there are people out there selling the idea of debt forgiveness for credit cards and loans. It seems appealing up front — getting out from under the money you owe lenders is all anyone really wants at the end of the day. But the truth is, most of these too-good-to-be-true offers come with catches that you’ll really need to be aware of before committing to anything.
In the case of credit card debt forgiveness, there are some lenders that offer this as an option. It’s typically offered as part of debt settlement, meaning the lender may decide to forgive your debt if it thinks you might file for bankruptcy or not pay your bill. Keep in mind, however, that the amount you don’t pay can ultimately trigger a tax bill.
This can also lead to wage garnishment and other severe consequences, and your credit score can suffer greatly from unpaid bills that are forgiven. Even if you go the debt settlement route, it’s likely smarter to file for chapter 7 bankruptcy.
“All the harassing phone calls and everything else that goes on just stops,” National Consumer Law Center attorney John Rao said of chapter 7 bankruptcy. “It’s a fairly quick process, and the consumer gets relief immediately.”
On the contrary, the debt settlement process can take months, and many settlement companies are ultimately scams.
“So many of these operations aren’t legitimate. They’re scams,” Rao said. “Even if they are legitimate, it’s just very difficult to get relief.”
It’s Been Done
In 2014, an Icelandic woman told NPR of her country’s “jubilee” program, which was designed to relieve debt for certain people in the country. It ultimately became a policy that worked for some but did nothing for others, and was widely criticized and debated.
The basic premise was that the government would forgive the country’s mortgages that were built up during the financial crisis in 2008/2009.
“It’s a beautiful idea that you could go back in time and try to undo this one very painful part of the financial crisis, make it like it had never happened. One problem with the jubilee idea of forgiving debt is that there’s always someone on the other side, someone who lent the money,” host David Kestenbaum explained.
In the end, the idea, which was proposed by the country’s progressive party, didn’t pan out the way it was intended to.
“On paper, a jubilee is this nice, simple idea, but in practice, it’s complicated. You can’t forgive all debt, so what debt exactly are you going to forgive? You’ve got to pick. And whatever you pick, there are going to be people who benefit from the jubilee living next to people who get nothing,” Kestenbaum said.
Pay Your Debts
Whether it’s a mortgage or a credit card, seeking forgiveness might not be the answer for you, as it can lead to mounting issues far beyond money owed. The alternative is to keep paying as much as you can or consolidating your debt in some way.
Talk to your lender and negotiate lower payments, or find some way to lighten your load without getting caught up in complicated forgiveness procedures, debt settlements or financial scams.