No matter how careful you are about your spending, if you’re carrying a credit card balance from month to month, you’re running the risk of your debt spiraling out of control. One of the main issues is that credit card interest charges compound, meaning that you’re charged interest on both your balance and the interest charges over time. But the compound nature of credit card debt is only one issue. Today’s high credit card rates are another factor to consider — and at an average of 23%, you don’t need to spend much to see the balance grow quickly. 

Unfortunately, many people are stuck relying on their credit cards right now, despite the compounding nature of the interest and today’s high average rates. That’s because while there have been big improvements in terms of inflation, the lingering effects have resulted in much higher costs for necessities like food, housing and utilities. As a result, many households have had to turn to plastic to help cover their everyday expenses. If you’re one of them, it’s important to get rid of this type of debt as soon as possible.

But what are your options if you’ve racked up a significant amount of credit card debt, like $25,000 worth? One option that may be worth considering is credit card debt forgiveness, also known as debt settlement. This approach involves negotiating with your creditors to reduce the total amount owed, which can result in significant relief. Before you start down this path, though, it’s important to understand how much of a $25,000 debt a forgiveness plan will cover. 

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How much of a $25,000 credit card debt will a forgiveness plan cover?

Debt forgiveness programs typically result in settling your debt for 30% to 50% less than the original amount. For a $25,000 credit card debt, this could mean reducing your debt to a range of $12,500 to $17,500. While this might sound like a significant reduction, the process isn’t always straightforward, and the actual amount that’s forgiven will depend on your financial situation and your creditors’ willingness to negotiate.

For example, creditors are more likely to agree to a settlement if they see it as the best way to recover part of what they are owed. That’s why borrowers who are facing serious financial hardships are typically in a better position to negotiate more substantial reductions. In these cases, creditors understand that if your situation worsens, you might be unable to pay anything, making them more likely to settle for less now rather than risk a total loss.

If you’re still making your minimum payments on time, though, your creditors may be less likely to agree to a debt settlement. Creditors aren’t required to negotiate, and in most cases, they won’t consider a settlement until you’ve fallen behind on your payments, which can have consequences. Being late on payments can hurt your credit score, lead to additional fees and may even result in legal action or debt collection efforts. 

Another key point to consider is that any amount of debt forgiven could be taxed as income by the IRS. If, for example, $10,000 of your $25,000 debt is forgiven, you could be required to report that $10,000 as income on your tax return, which could result in a higher tax bill. While this doesn’t negate the benefit of debt forgiveness, it’s something you’ll need to plan for when considering this option.

So while debt forgiveness programs can offer significant relief, they come with conditions. You’ll need to demonstrate financial hardship, be prepared for potential credit damage and plan for the tax implications of any forgiven debt. It’s still a solution worth considering for those overwhelmed by large balances, but it’s important to fully understand the terms and consequences before committing.

Enroll in a debt forgiveness program today.

What other debt relief options should I consider?

If debt forgiveness isn’t suitable for your situation, several alternatives exist, including:

Debt consolidation loans

With a debt consolidation loan, you:

• Combine multiple credit card balances into one loan with a potentially lower interest rate
• Create a single, more manageable monthly payment
• Establish a clear path to becoming debt-free
• Potentially improve your credit score by reducing credit utilization

Balance transfer credit cards

With a balance transfer, you can:

• Take advantage of 0% APR promotional periods, typically lasting 12-21 months
• Temporarily halt interest charges while focusing on principal reduction
• Make faster progress paying down debt
• Save significantly on interest charges during the promotional period

Debt management plans

With a debt management plan, the goal is to:

• Potentially reduce interest rates through creditor negotiations
• Create a structured repayment plan with professional guidance
• Have late fees and penalties reduced or waived

The bottom line

Carrying $25,000 in credit card debt can be overwhelming, but several debt relief options can help ease the burden. Debt forgiveness programs may allow you to settle for less than the full amount, potentially reducing your balance by up to 50%. If debt forgiveness isn’t right for you, options like debt consolidation, balance transfers and debt management plans could offer alternative paths to becoming debt-free. So, take the time to explore each approach and choose the one that best fits your financial needs and goals.