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Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
Falling behind on debt payments can happen to anyone Job loss, medical bills, divorce, or overspending can all lead to unmanageable debt If you owe more than you can realistically repay, asking for debt forgiveness may help you resolve what you owe and move forward financially.
This process involves asking your creditors to forgive or cancel part of what you owe in exchange for paying back a portion Debt forgiveness negotiations require careful planning and strategic communication, Follow these nine steps when asking creditors to forgive your debts
1. Review Your Current Financial Situation
Before reaching out to creditors, take stock of your finances. List all debts, missed payments, interest rates, fees, creditor contact details and account numbers. Also document assets, income, living expenses and cash available to put toward settlements.
This overview will help you determine realistic settlement offers based on what you can afford. It also ensures you have all relevant information handy when contacting creditors.
2. Prioritize Your Debts
Not all debts are equal, so rank them by priority level. Credit cards, personal loans and medical debt typically provide the best opportunities for negotiating debt forgiveness.
Debts like student loans, auto loans and mortgages are more difficult to settle. Focus first on card and loan accounts that have reasonable balances but high interest rates. Come prepared with target settlement offers for each creditor.
3. Locate The Current Creditor or Debt Owner
Before making settlement offers, confirm who currently owns each debt. Original creditors sometimes sell defaulted debts to third-party collectors or debt buyers.
Review your credit reports and contact info for each account. If an original credit card company no longer holds the debt, research the collection agency or debt buyer handling it now.
4. Rehearse What You’ll Say
Write down talking points to use during your calls with creditors. Explain your financial hardship and state the exact lump sum amount you can offer to settle each debt.
Emphasize that you want to resolve this responsibly and ask for their partnership. Avoid language that could weaken your position like promising to pay whatever they ask. Rehearse to ensure your delivery sounds natural.
5. Record Settlement Call Discussions
Notify creditors that you intend to record the calls. This protects you by creating a record of agreed-upon settlement terms. Just be sure to comply with any relevant state laws regarding recording conversations.
Transcribe or save the recordings to refer back to later. They function as evidence if any disputes arise regarding verbal agreements made.
6. Get Settlement Agreements in Writing
Verbal promises alone aren’t sufficient. Once a creditor agrees to your terms, request written documentation. This formal agreement should state the settled amount and payment due date.
Review the agreement carefully before signing. Never provide payment until you have signed documentation in hand.
7. Submit Settlement Payments
You’ll likely need to make a lump sum payment to the creditor within a specified timeframe after reaching a settlement agreement. Transfer or deliver funds on or before the due date outlined in the agreement.
Obtain and retain proof of payment documentation, such as a bank transfer receipt. Follow up to ensure the creditor received the payment and processed it correctly.
8. Verify Account Updates and Credit Bureau Reporting
Log into your creditor account online or call their customer service line to confirm your account balance was reduced to reflect the settlement agreement.
Also, obtain written confirmation detailing how the account will be reported to the credit bureaus. This influences how the settlement impacts your credit scores.
9. Send Goodwill Letters (Optional)
If a settled debt still drags down your credit, consider sending goodwill letters. These letters politely request that the creditor retract previous negative marks or modify the account status in your credit reports.
Frame this as an appeal to the creditor’s goodwill, not an attempt to skirt responsibility. Politely explain how poor credit resulting from the account hinders your financial recovery. Then, ask them to reconsider the reporting.
With the right preparation and negotiation approach, you may be able to resolve unaffordable debts at a fraction of what you owe. Just follow up diligently to ensure creditors honor the agreements as promised. Over time, reducing balances through settlements can often help improve your credit and put you in a better financial position.
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Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
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Calendar Icon 9 Years of personal finance experience Rhys Subitch is a Bankrate editor who leads an editorial team dedicated to developing educational content about personal loans products for every part of life.
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Bev OShea is an authority on credit reports, credit scores and identity theft.
At Bankrate, we take the accuracy of our content seriously.
“Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced.
Their reviews hold us accountable for publishing high-quality and trustworthy content.
Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy. Bankrate logo
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money. Bankrate logo
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
How debt forgiveness works
Debt forgiveness is when a lender or creditor agrees to wipe out all or part of a debt. You may be able to apply if you have unsecured debts, like credit cards, student loans or tax debt. Medical debts and mortgages may also qualify for some types of relief.
“Consumers can request debt forgiveness directly by contacting their creditors, providing detailed documentation of their financial hardship, and negotiating terms for debt relief,” says Josh Richner, Founder and Senior Debt Advisor at FaithWorks Financial.
Lenders aren’t obligated to wipe out your debts, however. Even if you meet the conditions, the process and how much debt they’ll eliminate depend on the lender and the type of relief. You may need to contact your lender directly to see what’s available and how their process works.
IRS One-Time Forgiveness Explained
FAQ
Can you ask for debt to be forgiven?
One possible path is debt forgiveness. This strategy typically involves negotiating with your credit card issuer or a debt collector to settle your balance for less than the full amount owed. In exchange for a lump-sum payment that is lower than your total debt, the remaining balance is forgiven.
How do you qualify for debt forgiveness?
Public Service Loan Forgiveness program: If you’ve made 120 qualifying payments under an income-driven repayment plan or standard repayment plan while employed full-time for a nonprofit, local, state, federal or tribal organization, your remaining debt could be forgiven.
What evidence do I need for a debt relief order?
This can be your last 2 months payslips, a benefits letter or a bank statement. If you are sending bank statements, please circle the relevant information. Please make sure you include any gas, electricity, water, rent arrears, council tax arrears and benefit overpayments.
Is there really a debt forgiveness program?