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.