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Is debt forgiveness a good option right now? Here’s what experts say
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Falling into debt is easy. One bad month leads to a balance on the credit card, and with compounding interest working against you, it may not be long until you’ve racked up a hefty credit card balance that you can’t pay off.
If this sounds like something you’re dealing with, you’re certainly not alone. According to the Federal Reserve Bank of New York, average credit balances are up almost 6% from a year ago. American consumers now have more than $1.17 trillion in total credit card debt.
Fortunately, there are solutions for this issue.
One is credit card debt forgiveness (also called debt settlement) — an option that could even help you settle those debts for less than you owe. But this type of debt relief may not be the right move for everyone, and it won’t be right for every situation, either.
Find out more about your debt relief options today.
Is debt forgiveness a good option right now? Here’s what experts say
Here’s what experts have to say about this strategy and when it might work for you.
When debt forgiveness might work for you
Debt forgiveness is when a creditor — a lender, credit card issuer, etc. — agrees to cancel a portion of (or with some types of debts, all of) an outstanding debt you have with them. It’s more common with certain types of debts, like federal student loans, for example.
“These are often forgiven through government programs or for people working in public service,” says Nate Towers, director at Five Pathways Financial. “You can get a big chunk of your student loans wiped out if you qualify.”
You also may be able to get medical bills forgiven or reduced, especially if you’re facing financial hardship, and there’s tax debt forgiveness, too (though it’s technically called an “offer in compromise,” Towers says.)
Finally, credit card issuers will sometimes forgive a portion of your balance, but typically only in certain circumstances.
“Creditors are generally reluctant to forgive debts, as it results in financial losses for them,” says Howard Dvorkin, chairman of Debt.com. “However, in situations where the debtor demonstrates significant financial hardship and the likelihood of full repayment is low, creditors might consider forgiveness as a viable option.”
Take steps to tackle your expensive debt now.
The downsides to debt forgiveness
Debt forgiveness may sound ideal, but as Dvorkin puts it, “There’s no such thing as a free lunch. Eventually, you pay a price.”
The main price? That comes in the form of extra taxes.
“When a company decides to forgive debt, they will write that off as a loss and take a tax deduction,” says Eric Elkins, CEO at Double E Financial. “Well, the IRS lost tax revenue, so they try to make up for that loss by applying the amount of debt forgiveness and add that as taxable income to you.”
In short: It means a higher tax bill next April.
On top of this added tax burden, debt forgiveness can also hurt your credit, which can make it harder to get a loan or apply for credit in the future. It’s also just a “time-consuming and challenging process,” Elkins says.
“If an entity is potentially willing to forgive your debt, then they are going to make you work for it,” Elkins says. “Prepare to meet high eligibility requirements. Be ready to prove you are struggling financially. Prepare to fill out numerous forms and applications.”
The bottom line
If you’re deep into debt, debt forgiveness isn’t your only debt relief option. You can also explore debt consolidation, which is when you use a single loan or card to pay off all your debts, essentially rolling them into one lower-rate balance.
Balance transfer cards that come with promotional 0% rates can be a good tool for this, but “Just be careful not to fall into the trap of using that new credit for more spending after you consolidate,” Towers says.
You can also work with a financial advisor or debt relief company to help you get out of debt or, in many cases, work something out with your creditors directly.
“Contact your creditors and try and negotiate a better deal for yourself,” Elkins says. “The worst thing they can say is no.”
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Thanksgiving dinner ingredients will cost more this year compared with last, even as food inflation cools. Fortunately, there’s one simple way to save money without skimping on staple dishes for the food-driven holiday: store brands.
Buying store-brand items versus national brand products is an age-old technique for saving money. And although there are instances of store-brand goods costing more than their name-brand counterparts, they can still save consumers money overall, new research from Wells Fargo shows.
How much can I save on store brands?
“Food inflation has slowed dramatically, but it’s still not cheaper than a year ago, so that’s a bone of contention from consumers,” Wells Fargo chief agricultural economist Dr. Michael Swanson told CBS MoneyWatch.
Still, grocery stores can undercut national brand prices by selling their own version of products from tissues to baked beans. Stores allege their products are equally good, but because they don’t market them, they can sell them at a relative discount.
“The whole premise is that store brand represents a value to you. What store brand is supposed to bring is the same quality, same product, without all the marketing,” Swanson said. “Brands explain why you should eat theirs and not someone else’s, whereas stores don’t spend money and are supposed to pass the savings along to us, the consumers.”
This year, a store-brand Thanksgiving menu for 10 people, including turkey, stuffing, salad, cranberries, dinner rolls and pumpkin pie will cost consumers $73. That same menu made with name-brand products, will cost $90 this year, or $17 more, according to the Wells Fargo report.
The $73 price tag is up 2.7% from last year.
Keep your eye on all items — not just the turkey
Grocers tend to run promotions on turkeys around Thanksgiving, given that they’re such a seasonal purchase — the two-week window before the Thanksgiving holiday is when grocers make the bulk of their whole turkey sales.
But buyers beware: Some retailers can lure you into the store with a deal on a turkey, only to sell you other items at high prices.
“Retailers will feature discounts on turkey to get you into store so that, while you’re there, you’ll pick up everything else,” Swanson said. “Make sure you don’t just go in for the turkey and not pay attention to prices of other things on the shopping list, which can add up to a lot of money.”
Store-brand stuffing mixes are still priced high, but are an opportunity for savings nevertheless. Name-brand stuffing is up 9% compared with the same period last year, and store-brand stuffing is up 3%.
Cranberries are an outlier this season. It’s a category in which the name-brand product is priced lower than the store-brand alternative. A 12-ounce bag of name-brand fresh cranberries is down 3% compared with 2023, while the same-size bag of store-brand cranberries is up 6%.
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