Credit Card Debt Forgiveness

Though the economy is beginning to stir and the recession seems a part of the past, there are many sectors that are still reeling under the effects of the slump. Many Americans found themselves facing large amounts of debt, and as a result amassed a staggering amount of credit card debt as well. Notwithstanding the negative 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 Leading to Credit Card Debt Forgiveness
Almost every individual has some amount of debt outstanding against his credit card and since this is an unsecured debt on the part of the lender, 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, banks and credit card companies, 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 credit card debt as well.

The primary factor behind the growing rate of debt forgiveness is the limited amount of funding that can be achieved 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 finds himself unable to pay off his amassed 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, he would prefer that the consumer paid a certain portion of his debts rather than have the entire amount written off due to his bankruptcy. The remaining portion of the debt can be forgiven by the lender. It is crucial to remember that the reason for this credit card's debt forgiveness is not altruistic generosity from the lender, but rather an acceptance of the inability of borrowers to pay off their debts entirely. The lenders resort to this only as a means to protect their own interest, but the benefits can be greatly reaped by the consumer.

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

Methods of Forgiveness
Some lenders choose to lower their rate of interest, or reduce the minimum level of monthly payments for a specific duration of time or simply settle the debt at a lowered amount. The simplistic logic behind this seemingly noble act of the lenders is that the sooner consumers get their finances in order, the sooner they can start borrowing money again.

For many years it has been a tussle between lenders to be the first choice card 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 in their payments, but also consumers who they feel could potentially end up as defaulters.

Now all this does not simply mean that consumers have achieved the leverage to get great deals out of lenders after being unable to pay their dues. There is a percentage of the population that regularly pays their bills and dues, and debt forgiveness does not go down too well with delinquents. Soon they will begin to question the benefits of paying off debts on time, as they may begin to believe that by defaulting on their outstanding debts, they will receive some degree of debt forgiveness on their credit cards. It's important to remember that lenders will offer these deals only to people that will meet their fixed criteria. The consumer's income, the credit history of the consumer and the relationship between the bank and the consumer are some of the elements that will aid in their decision-making process. As a result, these consumers will also have to suffer a sharp drop in their credit scores and this will make it harder for them to procure loans in the future. As an alternative, some consumers can even opt for credit counseling or debt settlement institutions.

Even as a defaulter, one must be extremely wary and cautious when dealing with lenders that resort to very aggressive marketing tactics and paint a bright picture of debt forgiveness, as there is bound to be something which they will not tell you. Read the fine print, pay close attention to debt management and be well prepared.