4 reasons to pursue credit card debt forgiveness this December
Credit card debt continues to rise, with balances up by $24 billion in the third quarter of 2024, according to the Federal Reserve. Americans now owe a record $1.17 trillion as consumers turn to their credit cards to cope with the fallout from inflation surges in the post-pandemic era. Delinquency rates also remain high, even after improving slightly for cards in the third quarter.
For Americans drowning in debt, options like debt consolidation and other kinds of debt relief may seem like a good way to improve their finances. Some of these solutions, like debt forgiveness, could potentially offer thousands of dollars in savings - and they may be worth pursuing this December.
"Debt forgiveness is when a creditor forgives, or erases, some of your debt" explains Sean Fox, president of debt resolution at Achieve, a personal finance company. "It's very unlikely that a credit card issuer would ever completely forgive debt, but negotiating for a reduction in what you owe is possible and is called debt resolution or debt settlement."
If you're trying to decide if you need this type of debt relief, it helps to consider some reasons why experts think pursuing credit card forgiveness could be worth doing this December.
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4 reasons to pursue credit card debt forgiveness this December
Not sure if now is the right time to pursue credit card debt forgiveness? Here are four reasons why it could be:
Debt relief may be easier to negotiate in December
Consumers pursuing debt forgiveness must negotiate with credit card companies to get them to agree to a plan.
"Sometimes creditors will agree to accept less and effectively lower the amount owed," explains Michael Sullivan, a personal finance consultant with Take Charge America, a credit counseling and debt management agency.
While Sullivan warns that creditors don't always offer this option, and sometimes may pursue alternatives like wage garnishment instead, he believes you may have an edge if you try to negotiate your arrangement in December rather than waiting until the new year.
"December is not a popular month for consumers to pursue debt relief," he said. "Most consumers are attempting to get through the holidays and to keep spending. January is the busy time so a consumer can certainly get more attention and a quicker response in December."
If you're a candidate for debt relief, being able to move more quickly through the negotiation process is an important incentive to act sooner rather than later.
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Interest rates are likely to remain high
The average credit card interest rate is now 23.37%. High rates are one reason credit card debt is so challenging to repay and they are likely to be persistent.
"People carrying debt are paying a full 20% more than the purchase price of the items they bought with their credit cards," explained Fox. "While rates have come down slightly, they're still over 20% and not projected to fall significantly any time soon."
For consumers hoping falling rates will make debt more manageable, the Fed's signaling a more cautious approach to rate cuts in 2025 is disappointing. Rather than continuing to hope for a rate cut that may not be coming - and paying high rates on unsustainable debt in the meantime - pursuing forgiveness sooner rather than later can be a better approach.
You can begin moving towards a better credit score
Debt relief is not free of consequences. "It will hurt your credit score and limit your ability to obtain any future loans," warns Domenick D'Andrea, AIF, CRC, CPFA, financial advisor, and co-founder of DanDarah Wealth Management.
Still, moving forward and accepting these consequences sooner rather than later could be the first step toward rebuilding and taking that first step sooner can get you moving towards improving your credit and finances rather than staying stuck in limbo.
"Debt resolution can impact credit scores negatively for a temporary period," Fox says. "However, people considering debt resolution generally already have poor credit going into a program. Once the consumer pays off the settlement, scores typically increase quickly."
You can start the year with a clean slate
Finally, the most obvious reason to pursue credit card debt forgiveness is to take control of your debt problem now to start the year with a clean slate.
One of the biggest debt-relief mistakes is continuing to delay and make payments on debt that won't ever be reasonably repaid. This is just sending good money after bad when the some top debt relief companies could help you tackle your problem and stop wasting funds on interest without making headway on principal.
"If you decide that debt relief is the only way to dig yourself out of your current situation then what better way to start the New Year," advises D'Andrea. Sullivan also agrees there's little benefit to putting off the inevitable, saying, "the best time to pursue a financial solution is always today."
