Credit Card Facts: Is Debt Forgiveness Real?

Rahul Thadani Jan 10, 2019
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It is highly unexpected from banks or credit card companies, but forgiving credit card debt is a growing phenomenon in today's credit-heavy world.
Though the economy is beginning to stir and the recession seems a thing of the past, there are many sectors that are still reeling under the effects of the slump. Many Americans have found themselves facing large amounts of credit card debt.
Notwithstanding the adverse repercussions of the recession, it has been calculated that on an average, an American ends up spending around 15% more due to the accrued payments on his/her credit card.

Factors

Almost every individual has some amount of outstanding credit card debt and since this is completely unsecured, debt forgiveness is something which does not occur frequently. But since the past few months, this unlikely event is beginning to occur more and more often.
The driving force behind this surprising move by the lenders, is the growing realization that due to the vast sums of debt already owed by the consumers, it may be extremely difficult for them to pay off their card outstanding as well.
The primary factor behind its increasing popularity is the limited amount of funding available from alternative sources now. Tapping home equities, settling for debt consolidation loans, or even drawing from retirement savings are not feasible options for consumers anymore.
If an individual is unable to pay off his debt, then he has to compulsorily declare himself bankrupt. When this happens, the entire outstanding amount against that individual is written off. From a lenders point of view, they would prefer that the consumer paid a certain portion of his debts rather than have the entire amount written off due to bankruptcy.
The remaining outstanding can be forgiven by the lender. The reason for this is not any altruistic generosity on the part of the lender, but rather an acceptance of the inability of the borrowers to pay off their debts entirely.

Debt Consolidation

Another approach is when the customer approaches the bank for the procurement of one loan in order to repay all his other debts. These could also include his credit card debt and as a result, the borrower gains more time to repay.
If the lender agrees, then the customer may pay back the loan at a slower but steadier rate. This method is also known as debt consolidation. If the customer puts up his house as a collateral, the major advantage is that the taxes on his debt will be written off.

Other Methods

Some lenders choose to lower their rate of interest, reduce the minimum level of monthly payments for a specific duration of time, or simply enter into a settlement at a lowered amount. The simplistic logic behind this seemingly noble act is that the sooner consumers get their finances in order, the sooner they will start borrowing money again.
For many years, there has been a tussle between lenders to be the first choice of consumers, now there is an ongoing battle to decide which one of the lenders gets paid back first.
Debt forgiveness is a means to an end in this regard, as even a lowered amount of repayment is better than no payment at all. Lenders are not only targeting consumers that have defaulted on their payments, but also those who they feel could potentially end up as defaulters.
All this does not mean that consumers have achieved the leverage to get great deals out of this initiative. Soon they will begin to question the benefits of paying off debts on time, as they would believe that by defaulting, they can get away with it. It's important to remember that lenders will offer these deals only to people meeting certain criteria.
The customer's income, credit history, and relationship with the bank are some factors that will aid in their decision-making process. As a result, these people will also suffer a sharp drop in their credit rating, making it harder for them to procure funds in future. As an alternative, one can even opt for credit counseling or debt settlement programs.
Even as a defaulter, one must be extremely cautious when dealing with lenders that resort to aggressive tactics and paint a bright picture of debt forgiveness, as there are bound to be hidden charges and conditions. Make sure to read the fine print before availing this proposal.
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