If you are swamped with debt from credit cards, student loans, auto loans or any other type of loan, you should take solace in the fact that you are not alone. Debt is an ever-growing problem that affects millions of Americans. The unfortunate truth is that society teaches us to treat ourselves like businesses. Most businesses are required to go into debt before they can make any money. If you are like most people, you’ve taken on some debt in order to kick-start your life. Thankfully, debt forgiveness is a viable option.
Debt Forgiveness Basics
Debt forgiveness involves a lender deleting some of your debt so you can avoid defaulting on the entire amount owed. This seems like a dream come true, doesn’t it? Like everything else in life, there is another side to the coin of debt forgiveness.
Why Debt Forgiveness Isn’t as Appealing as It Seems
The downside to debt forgiveness is that it harms your credit score. However, you might not be that concerned about your credit score if you are mired in crushing debt. You have probably missed payments, made late payments and maybe even defaulted on a balance or several balances. As a result, taking a hit to your credit score due to debt forgiveness might not prove to be that disastrous. After all, what harm can be done to an already tarnished credit score? In the end, it might be prudent to request that the debt is forgiven so you can move on with your life and put those unpaid debts behind.
Debt Forgiveness Takes Time
If you are under the impression that you can request debt forgiveness with your lender through a quick phone call, think again. Debt forgiveness does not occur in a single day. You will have to proceed through a time-consuming series of negotiations with your lender. Though it is possible to perform such discussions on your own, the majority of debtors rely on companies that specialize in negotiating debt forgiveness and debt repayment plans with creditors.
From the creditor’s perspective, it makes sense to consider debt forgiveness if it appears as though you will default on your entire balance. The burden of proof is squarely on your shoulders. You must prove that you will likely never have enough money to pay your entire debt but are capable of paying a portion of it. The lender will accept this payment and forgive the remainder.
The Impact on Your Credit Score
As soon as a lender agrees to debt forgiveness, they report the forgiveness to the credit bureaus. This debt forgiveness appears on your credit report along for seven years. If you require financial assistance in the form of an auto loan, a small business loan or even if you apply for a job in which an employer checks applicants’ credit scores, debt forgiveness might prove to be a major mistake. So, spend some time weighing the pros and cons of debt forgiveness before agreeing to such a plan.
Think Long and Hard Before Making a Decision
It is clear that there are some ramifications to debt forgiveness. If you are not overly concerned with your credit score and will not require any type of loan in the future, debt forgiveness might prove quite helpful. Take your time before making a decision whether debt forgiveness is right for you.