If you’ve been searching high and low for debt forgiveness options, then you’ve likely encountered private companies peddling debt forgiveness scams in exchange for high fees.
Thankfully, there are legitimate debt forgiveness programs out there for student loans and education costs, as well as for credit card and tax-related debt. Here’s how you can find them.
1. Federal student loan debt forgiveness
There are four ways to seek partial or full forgiveness on your federal student loans, including:
- Income-driven repayment: Depending on your repayment plan, if you’ve made payments for 20 or 25 years, you could qualify for forgiveness on your remaining balance.
- Perkins Loan cancellation: Depending on your profession or situation, you could apply to have your Perkins Loan debt forgiven over a few years or all at once.
- Public Service Loan Forgiveness: If you’ve made payments for 10 years while working for a qualifying employer in the public or nonprofit sectors, you could have your remaining balance wiped away.
- Total and permanent disability discharge: No matter your stage of repayment, you could have your education debt erased if you’re faced with a total and permanent disability.
There are other extreme cases where you can get your federal student loans discharged, such as in death or bankruptcy. Plus, there are federal loan forgiveness and repayment assistance programs for various professions, such as teachers, nurses, doctors, and lawyers.
Remember that any forgiven federal student loan amounts could be treated as taxable income by the IRS. Make sure to double-check current IRS rules and prepare for a large tax bill, if necessary.
Unfortunately, if you’re looking to have your private student loans forgiven, you’re out of luck. Still, there are alternatives to forgiveness that could save you money, such as refinancing your student loans or seeking out companies that pay off student loans.
2. Credit card debt forgiveness
If you’ve searched for credit card debt forgiveness programs, then you’ve probably run into debt settlement companies.
These for-profit businesses negotiate with your credit card issuer on your behalf so that you pay less than what you owe. If it works out, the issuer agrees to forgive the difference in exchange for a lump-sum payment.
Keep in mind that any amount of credit card debt that’s forgiven could come back to bite you on your income tax returns.
To avoid debt forgiveness scams, the Federal Trade Commission recommends that you avoid companies that promise to erase your debt and collect fees before they do. Vet companies using your state’s consumer protection agency.
You’ll also want to be wary of a debt settlement company advising you to cut off contact with your credit card issuer. Not making payments while the debt settlement company negotiates will harm your credit score.
Instead, open up the lines of communication with your card company. Success is rare, but nothing bars you from negotiating a settlement or altered repayment plan yourself.
You also might have heard that it’s possible to achieve credit card debt forgiveness via bankruptcy. Although it’s possible to have debt forgiven in some bankruptcy cases, you’re required to explore your options with a credit counselor before taking such a drastic step.
A credit counselor won’t grant you debt forgiveness either, but they have the training to help you manage and pay down your debt. If a settlement is the way to go, they can steer you in the right direction. If you’re not sure where to find the right counselor, the Department of Justice maintains a list of approved credit counseling agencies.
3. Tax debt forgiveness
The IRS’ offer in compromise (OIC) isn’t exactly debt forgiveness, but it’s the next best option when it comes to dealing with your tax debt.
A part of the federal agency’s Fresh Start program, OIC allows taxpayers to offer to pay less than what they owe. The IRS only accepts a taxpayer’s offer if it “represents the most the agency can expect to collect within a reasonable period of time,” according to the government website.
The IRS won’t accept your offer to pay off half of your taxes, for example, if you have the finances to pay the full amount in a lump sum or via an installment plan.
To assess your finances, the IRS will look at your income and expenses as well as the amount of equity you own in your assets, such as your home or car.
Unless your finances are in dire straits, you’re unlikely to be approved. In fact, the IRS accepted about 40% of the 62,000 OICs it received in 2017, according to the 2017 IRS Data Book.
Check out the IRS pre-qualifier tool and IRS OIC booklet to gauge your eligibility. You wouldn’t qualify, for example, if you’re in the midst of a bankruptcy proceeding. It also wouldn’t make sense to apply if it’s been nearly 10 years since the taxes were first assessed, as the agency can’t attempt to collect them a decade later.
If your OIC is rejected, you could use the IRS self-help tool to understand why.
Either way, you might be better off entering an installment agreement with the IRS. If you owe up to $50,000, you could set up monthly payments for up to six years. It’s not debt forgiveness, but it’ll give you a path toward being tax debt-free.
Whatever your debt situation, there are legitimate solutions that can help ease the burden of your dues — even if it’s not complete forgiveness. Take the time to review your options and come up with a plan that’s best for you.
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