CBS News
5 times that credit card debt forgiveness is a bad idea
As the cost of living continues to climb and unexpected expenses arise, more people find themselves turning to credit cards as a temporary solution. And while doing so can buy you some time in between paychecks or make it easier to pay for surprise car repairs or medical bills, using your credit cards without paying them off in full each month can leave you trapped in a cycle of mounting debt.
When that happens, it can make sense to turn to certain debt relief options, like credit card debt forgiveness, as a way out. When you enroll in a credit card debt forgiveness (or debt settlement) program, the goal is to negotiate with your creditors to pay less than you owe on your balances in return for a lump-sum payment on the account. This allows you to expedite the repayment process and save significantly on what you owe.
But while debt forgiveness can indeed be a lifeline for some, these programs are not a one-size-fits-all solution, and in some cases, enrolling in one isn’t the best idea.
Find out how debt forgiveness (and other debt relief options) could benefit you now.
5 times that credit card debt forgiveness is a bad idea
There are a few scenarios in which debt forgiveness can be a less-than-ideal approach, including:
When you can afford to pay off your debt
One common misconception about credit card debt forgiveness is that it’s always a good option if you’re in debt. However, if you have a stable income and can afford to make your monthly payments, debt settlement programs may do more harm than good, as they often require you to stop making payments to your creditors while you save up for settlements, which can damage your credit.
Many debt relief companies also charge hefty fees for these programs, which typically range between 15% to 25% of the enrolled debt. If you can afford your card payments, that money could be better spent paying down your debt directly. Plus, you might be able to negotiate with your creditors directly to secure a lower interest rate or a more manageable payment plan.
Ready to deal with your credit card debt? Explore your top debt relief options here.
When you’re close to paying off your debt
If you’re nearing the finish line with your credit card debt, entering a debt forgiveness program could be a step backward. Most of these programs take two to four years to complete, and during that time, your credit score will likely suffer. So, if you’re already close to paying off your credit card debt, it’s usually better to do so.
Debt forgiveness programs also focus on settling your debts for less than what you owe, which can sound appealing. However, the portion of your debt that’s forgiven may be taxable, so you might end up paying more in the long run between taxes and fees.
When you have a cosigner on your debt
While having a cosigner on your credit card accounts isn’t common, it is an option with some card issuers. And if you have a cosigner on any of your credit card accounts, entering a debt forgiveness program could have serious consequences for them. When you stop making payments as part of a debt settlement strategy, it also impacts your cosigner’s credit score.
Creditors can still go after your cosigner for the full amount of the debt, too, potentially putting them in a difficult financial position. So, it’s crucial to consider the impact on others before enrolling, especially if they’ve put their own credit on the line to help you with yours.
When you’re considering bankruptcy in the near future
If there’s a possibility that you might need to file for bankruptcy, entering a debt forgiveness program could be a waste of time and money. These programs require you to set aside money each month for settlement offers, and if you end up filing for bankruptcy before completing the program, that money could be considered an asset and be seized.
Participation in a debt forgiveness program could also be seen as preferential treatment of certain creditors over others, which can complicate a bankruptcy filing. So, it’s typically better to consult with a bankruptcy attorney beforehand if you’re unsure about your long-term financial prospects.
When the debt relief company seems untrustworthy
Scams or unethical practices can be an issue with some debt relief companies, so it’s important to be on the lookout for any red flags. For example, if a debt relief company makes promises that seem too good to be true or pressures you to sign up quickly, it’s typically best to steer clear.
Reputable debt relief companies should also be registered with relevant state agencies and professional organizations and provide clear information about their fees, the potential risks of their programs and the expected timeline for debt settlement. If a company can’t or won’t provide this information, you should look elsewhere for help.
The bottom line
While credit card debt forgiveness can be a valuable tool for some, it’s not always the best solution. Before entering this or any other type of debt relief program, it’s crucial to carefully assess your financial situation, consider the long-term implications and explore all available options. By understanding when debt forgiveness might not be the best choice, you’ll be better prepared to make choices that truly support your long-term financial health.
CBS News
Trump looking to appeal to Jewish voters on campaign trail
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
CBS News
FBI says Iran hackers sent Trump campaign info to Biden campaign, what to know
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
CBS News
Best mortgages for first-time homebuyers
Rising home prices and high mortgage rates haven’t made buying a home easy these last few years. In fact, with affordability such a challenge, it’s only made shopping around for a lender that much more important.
It’s true: Comparing lenders can make a big difference when it comes to price. According to Freddie Mac, getting just four different mortgage rate quotes can save you about $1,200 per year.
But rates aren’t the only thing you should think about when choosing a lender. Want to make sure you pick the best mortgage company for your needs? See below for some of the best lenders for first-time homebuyers currently on the market.
Lock in a low mortgage interest rate here today.
Best mortgages for first-time homebuyers
Here are the best mortgage lenders for first-time homebuyers, broken down into six categories:
Best for low down payments: Veterans United
Veterans United exclusively offers VA home loans — which means all its loans require zero down payment. Though you’re welcome to put some money down, VA loans are one of the few mortgage options with no down payment requirement.
There is a catch, though: You’ll need to be a current military member, veteran, or spouse of one to qualify. Certain service requirements must be met as well. If you can do it, though, you’ll save yourself money both upfront (on the down payment) and in the long haul, as VA loans tend to have lower interest rates than other loan options.
Learn more about Veterans United here now.
Best for good credit: US Bank
If you have decent credit, US Bank might be a good option for your mortgage. The lender offers conventional, FHA and VA loans, and its rates are some of the lowest of lenders we analyzed. You can also apply fully online and get valuable closing cost discounts if you use other US Bank services.
Best for low credit: Cardinal Financial
Cardinal Financial is a good option if your credit score is on the lower end. The lender allows for scores as low as 620 on conventional loans and 580 on FHA, VA, and USDA loans. There are also jumbo loans — if you’re buying in a high-priced market or eyeing a more expensive property — and construction loans for buyers looking to build their own homes from the ground up.
Best for no lender fees: Better.com
Most lenders charge a variety of fees for processing your mortgage. These might include an origination fee, application fee, underwriting fee, and more. With Better.com mortgages, you won’t see any of these charges. The online lender charges no lender-side fees for underwriting, servicing, or originating its mortgages. There are other typical closing costs, though.
Best for online borrowing: First Mortgage Direct
First Mortgage Direct is a fully digital mortgage lender that lets you manage your mortgage process from start to finish all on the web. You can get a rate quote online, fill out an application, submit your documentation, and even close digitally, too. The lender also offers many online resources to help you along the way — things like informative videos, calculators, articles and more.
Best overall: New American Funding
New American Funding has something for everyone: conventional loans, government-backed loans, jumbo loans, construction loans, non-QM loans and more. There are even loans with customizable terms and options that can turn you into an all-cash buyer to make you more competitive. The lender also has a 4.1-star rating with the Better Business Bureau and a 4.6-star rating on Trustpilot.
Always shop around
Whether you’re buying your first home or your fifth, shopping around for your mortgage is important. If you need help doing so, consider enlisting a mortgage broker. These professionals can shop around on your behalf, help you compare lenders and loan options and ensure you get the best rate.