When inflation reached a four-decade high in mid-2022, millions of consumers in Michigan and around the country began using their credit cards to pay for necessities like groceries. They were dealt another blow when the U.S. Federal Reserve started to increase interest rates to bring inflation under control. In late 2023, the federal funds rate reached a 23-year high. Rising prices and soaring monthly credit card payments have prompted cash-strapped consumers to explore debt relief options, and many of them have been attracted by companies that offer credit card debt forgiveness programs.
Credit card debt forgiveness
These companies say that they will negotiate with lenders to reduce or eliminate credit card obligations, but this rarely happens unless the accounts involved are already seriously delinquent. Credit card companies may be prepared to forgive some debt, but forgiveness is rarely offered unless collection efforts have been unsuccessful and repayment seems unlikely. When debt is forgiven, lenders inform the credit reporting agencies that accounts were settled for less than the full amount. This lowers credit scores even further.
Credit forgiveness scams
The consumers who pursue credit debt forgiveness are usually struggling to cope with unmanageable financial situations, which can make them susceptible to fraud. If you are considering debt forgiveness, you should look for a company that has an established track record and avoid operations that charge large up-front fees. Misrepresentation and fraud have become so common in the debt relief sector that the Federal Trade Commission has created a page on its website that warns consumers about credit repair and debt forgiveness scams.
Bankruptcy
Credit card companies agree to forgive debt when they are worried that consumers will file for personal bankruptcy. Unsecured debts like credit card balances are often discharged during the process, which can lead lenders to conclude that receiving less money is better than receiving no money at all.
