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@Lesia.Valentain/Twenty20

If you feel like you have more debt than you can handle, you’re not alone. The average indebted American has $38,000 in personal debt, according to a recent Northwestern Mutual study, and that’s before you add mortgage debt into the mix. It’s no wonder so many of us feel like we’re putting every extra penny towards our debts.

Of course, some of us don’t have enough extra pennies to cover all of our debt obligations. If you’re only making the minimum payment on your credit cards, for example, you’re getting new debt in the form of interest added to your balance every month. Other people have so much student loan debt that they can spend years making payments without significantly reducing their principal. This type of debt cycle often leads people to search for other options, such as debt forgiveness.

But debt forgiveness isn’t as forgiving as it looks. In the best-case scenario, you’ll end up with higher taxes and a lower credit score; in the worst-case scenario, you’ll wind up working with a shady “debt settlement” company that won’t actually solve your debt problem.

Here’s what you need to know about debt forgiveness — as well as other ways to tackle your overwhelming debt.

What is debt forgiveness?

Debt forgiveness is exactly what it sounds like: getting part or all of your debts forgiven. However, true debt forgiveness is rare. In most cases, debt forgiveness comes at a cost: a tanked credit score, a foreclosed house, additional taxes, and more.

How does debt forgiveness work?

Credit card debt

If you’re having trouble making payments on your credit card, your first step should be to contact your card issuer and ask to speak to the hardship department. Credit card issuers are often willing to help you by extending your payment due date, removing late payment fees, or even reducing your interest rate. You can also negotiate lower minimum payments, although that means it’ll take longer to pay off your total debt and you may end up owing more in interest.

If you fall so far behind on your credit card debt that it ends up in collections, you might be able to work out a debt forgiveness agreement with the collections agency. These agencies are sometimes willing to forgive part of your debt if you agree to pay off the remainder of your debt in either a lump sum or a series of installments. However, getting your debt sent to a collection agency isn’t good for your credit score — and it could limit your future financial options.

Mortgage debt

There’s no easy way around it: if you want your mortgage debt forgiven, you’re going to have to give up your home. Short sales and foreclosures are two ways to reduce or eliminate your mortgage debt, but be aware of the tax implications; the Mortgage Forgiveness Debt Relief Act of 2007 used to allow consumers to avoid paying taxes on discharged mortgage debt, but as of January 1, 2018, the IRS considers any forgiven mortgage debt taxable income.

If you’re having trouble paying your mortgage, don’t assume foreclosure is your only option. Instead, visit the U.S. Department of Housing and Urban Development’s Mortgage Assistance Options website. You’ll learn how to apply for forbearance (which can give you a short-term break on your mortgage payments) as well as how to request mortgage modifications, set up repayment plans, and more.

Student loan debt

Student loan debt is rarely forgiven — in fact, many people still have to pay back their student loans even after filing for bankruptcy. However, people who want to reduce or manage their student loan debt payments have a few options:

  • Refinancing can reduce your interest rates.
  • Loan consolidation gives you the option to combine multiple student loans into a single loan — and can reduce your monthly payment.
  • Income-based repayment plans can lower your monthly payment, especially if you’re not earning a lot of money.

Use our guide to paying off student loans to determine which of these options are right for you. One more note: although many students signed up for the Public Service Loan Forgiveness program, recent reports show that very few loans are actually being forgiven. This may change in the future, but don’t count on PSLF as your ticket to debt forgiveness.

What are some of the pitfalls of debt forgiveness?

Poor credit

If you stop making payments on your credit card debt and let it go to a collection agency, you might be able to get some of your debt forgiven — but you’ll ruin your credit score in the process. Poor credit will make it lot harder for you apply for a mortgage or a car loan, and can even affect your ability to get a job or rent an apartment. You’ll also be limited to credit cards for people with bad credit, many of which come with security deposit requirements and high interest rates.

Higher taxes

The IRS counts forgiven debt as “income,” which means you’ll owe taxes on it. That can be an unexpected — and sometimes unaffordable — surprise. You may be able to avoid the additional tax burden by proving that you were insolvent prior to receiving debt forgiveness, but you’ll need to talk to a tax professional to determine whether you qualify for the insolvency exception (and working with tax professionals also costs money).

Shady debt settlement agencies

There are a lot of shady agencies ready which to prey on people in crisis. Some debt settlement agencies charge money to handle tasks you could have done on your own (such as contacting a credit card issuer’s hardship department); others are outright scams that take your money without doing any work towards reducing your debt. Do your due diligence before signing up with any debt settlement, credit card consolidation, or credit repair program — consult the Better Business Bureau, look for user reviews, and avoid any program that charges fees up-front.

Are there other ways to pay off large amounts of debt?

Balance transfer credit cards

It’s a lot easier to pay off your debts if they aren’t racking up interest. Balance transfer credit cards are designed to help you get your credit card debt under control, interest-free. Simply transfer your credit card balances to the balance transfer card, then use the card’s 0% APR grace period to pay off your debts without paying interest.

You will have to pay a small fee when you move a balance onto your new balance transfer card, but if you can pay off your credit card debt entirely get your credit card debts paid off before the interest-free grace period expires, it’ll save you a lot of money.

Credit counseling

Credit counselors work with you to create a customized plan to tackle your debt. They may work with you to develop a budget that allows you to pay down your debt, and they might look for ways to reduce your payments and interest. You may also receive a Debt Management Plan in which you pay money directly to the counseling agency and they use that money to settle your debts. Use the U.S. Department of Justice’s list of approved credit counseling agencies to find a reputable counseling service near you.

Online budgeting tools

Many online budgeting and personal finance tools are designed to help you manage your expenses and pay off your debts. You’ll learn about various techniques to pay down debt more quickly, such as the snowball method and the avalanche method. Bankrate also has multiple tools to help you manage and pay down your debts, such as our credit card balance transfer calculator, our credit card payoff calculator, and our student loan calculator.

Remember: your debt might feel overwhelming, but there are steps you can take to get it under control. If your credit card interest is keeping you from making progress on your debts, consider a balance transfer credit card. If you can’t make a payment this month, call your credit card issuer’s hardship department and explain the situation. If you need a little extra motivation, use the snowball method to get that first debt paid off in full — and then get ready to tackle the next one. If you feel like you can’t do it on your own, contact a reputable credit counseling agency.

You have plenty of options — and they’re all better than letting your debt go to collections in the hope that some of it might be forgiven.