How to Get Out of Credit Card Debt Without Paying: 5 Strategies

Crushing credit card debt is a weight you don't have to carry. You have options for credit card debt relief that can help you manage your debts and eventually become debt free. Some debt solutions could even help you get rid of credit card debt without paying as much as you owe. 

These options aren't magic wands. You'll likely pay back at least some of your debt. But they could help you get on the road to a better financial future.

Five Ways to Get Out of Credit Card Debt Without Paying the Full Amount

There are right ways and wrong ways to get out of credit card debt without paying. Simply stopping payments and hoping it goes away? That's the wrong way.

If you stop making payments to your creditors and let the accounts default, your credit will suffer serious damage. You will probably start receiving collection calls and letters. Worse, ignoring debts could open you up to a lawsuit.  Your creditors could sue you over unpaid debts. If your creditors win the judgment, they could get permission to garnish your wages or seize your bank account to get their money back. 

It doesn't have to come to this. If you'd like to avoid a credit card debt lawsuit, there are five other possibilities for getting rid of what you owe without paying in full. 

Debt negotiation

Debt negotiation, also referred to as debt settlement, means asking your credit card issuers to accept less than the full amount owed on your balances. Negotiating debt could help you pay off credit cards for less money. 

For example, say you owe $5,000 to one of your credit cards. You could try to negotiate with the credit card company to accept $3,800 instead. Once you make the payment, the remaining $1,200 in debt is canceled and you owe nothing else. 

To convince a credit card company to agree, you’ll have to show that you can’t afford to fully repay the debt.  

You can negotiate debts yourself. Or you could choose to work with a professional debt settlement company like Freedom Debt Relief, where expert negotiators work on your behalf.

You might consider debt negotiation if you've fallen behind on credit card bills but you'd rather avoid filing for bankruptcy. Here are the pros and cons of using debt negotiation to get out of credit card debt. 

Pros:

• Debt negotiation could significantly reduce what you owe. 

• You can DIY it or get help.

• Settling debts could help you avoid bankruptcy. 

• You could resolve your debts faster than by making minimum payments.

Cons:

• Forgiven debt is considered taxable income by the IRS, unless you're insolvent. Insolvent means that your debts are bigger than the total of the things you own.

• Debt negotiation companies charge fees, which reduce your savings. 

• The debt settlement process typically causes credit score damage. But it’s possible to rebuild your credit over time. 

Chapter 13 bankruptcy

Bankruptcy means asking a federal court to grant you relief from your debts because you're unable to pay. If you're considering bankruptcy to get out of credit card debt without paying, you typically have two options: Chapter 7 or Chapter 13. 

Chapter 13 bankruptcy doesn't zero out credit card debts or other debts completely. Chapter 13 is a repayment plan approved by the bankruptcy court. You’ll be required to pay all of your disposable income toward your debts for five years (three years if you’re low-income). 

A bankruptcy trustee determines how much you're required to pay. Any remaining balances owed at the end of your payment plan are discharged (forgiven) by the court. 

Here are the pros and cons of filing Chapter 13 to get rid of credit card debt.

Pros:

• Chapter 13 bankruptcy gives you time to pay back what you owe, without having to worry about being sued. You could use Chapter 13 to get caught up on your mortgage and avoid foreclosure.

• You may be able to get some of your credit card debt balances wiped out once you complete your repayment plan. 

• The court won’t sell any of the things you own to satisfy your creditors (but their value will be factored into your plan).

Cons:

• You’re responsible for fully repaying any debts that weren't included in your Chapter 13 filing. 

• Chapter 13 stays on your credit reports for up to seven years.

• There are court fees, and most people pay attorney fees. It’s possible to end up paying more through Chapter 13 than the original amount of your debt.

Chapter 7 bankruptcy

Chapter 7 bankruptcy can wipe the slate clean on credit cards and other unsecured debts. 

You could walk away from a Chapter 7 filing without paying anything directly to your credit card debts. The court might sell some of the things you own and give the money to your creditors. 

You don’t have to lose the shirt off your back, though. What you’re allowed to keep depends on where you live and whether you use your state’s list of exemptions or ‌the federal government’s. Here are a few examples of things you might not have to give up.

• Some home equity 

• A modest car 

• A small amount of jewelry 

• Household goods, including furniture and appliances

• Tools and equipment that are necessary to do your job

• Life insurance policies

• Home health aids

All of these exemptions have dollar limits. For instance, the government allows $5,025 for your car. If you own a paid-off vehicle worth $30,000, it might not be protected.

Depending on where you live, you might be able to use state exemption rules instead. But giving up some of your property might be a worthwhile tradeoff if you're ready to escape credit card debt and start over financially. 

Here are the pros and cons of filing Chapter 7 to get rid of credit card debt.

Pros:

• Chapter 7 can zero out all of your credit card balances without paying anything. 

• You could become credit card debt-free through Chapter 7 in a matter of months, versus taking several years to complete Chapter 13. 

• Filing Chapter 7 bankruptcy immediately halts creditor collection actions, including civil lawsuits. Creditors can’t opt out of your bankruptcy case.

Cons:

• If you can afford a payment, you might not qualify for Chapter 7. 

• You might have to give up certain assets. You could even lose your home. 

• A Chapter 7 filing can stay on your credit reports for up to 10 years.

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How Getting Rid of Credit Card Debt Impacts Your Taxes

When you make an agreement for debt forgiveness or debt settlement, some of your debt could go away. But that might not end your financial obligations related to that debt. Specifically, you may still need to pay taxes on it.

If any amount of debt is discharged (forgiven) in bankruptcy, there’s no tax bill.

But if debt is forgiven as the result of debt settlement or a hardship program, the amount that was canceled is generally taxable. Canceled debt is reported as regular income to the IRS.

For example, if you settle a $15,000 for $5,000, the creditor will report the $10,000 forgiven amount and you’ll have to add it to your taxable income. 

There's an important exception to this rule.

Main exception: insolvency

The IRS won’t make you pay taxes on forgiven debt if you’re insolvent. 

If the total of your debts (what you owe) is worth more than the total of your assets (what you own), you're insolvent. 

It’s a sliding scale. Here’s a simple illustration of how it could work.

In this example, the debts exceed the assets by $26,000. 

Now let’s say you negotiate your credit card debt down to $12,500 and your medical debt down to $10,000. Your creditors could report $37,500 in canceled debt.

You won’t pay taxes on the first $26,000 in canceled debt. The remaining $11,500 in canceled debt could be added to your taxable income.

The IRS offers a worksheet you could use to determine whether you’re insolvent. Go over it with a qualified tax professional before you make any decisions about how to handle your debts.

How to Get Out of Credit Card Debt Without Hurting Your Credit

Any strategy to get out of credit card debt without paying the full amount will likely have a negative impact on your credit scores. That’s especially true if you miss payments at any time.

Make at least your minimum required payment on time every month to avoid credit score damage. If you can't afford your monthly payments but want to keep your credit score in good shape, explore ways to lower your payments.

2 Ways to Reduce Your Monthly Credit Card Payment

If you can't reduce your balances, the best way to lower your monthly credit card payments is to get a lower interest rate. Here are a few strategies to get a lower credit card payment.

Debt consolidation

Debt consolidation means combining multiple debts into one, typically through a debt consolidation loan. Essentially, you're taking out a new loan to pay off what you owe to your credit cards. 

Why would you do that? Debt consolidation won't reduce your debt balances. It only moves the debt to a new place. 

It’s an option to consider if you qualify for a lower interest rate on the debt consolidation loan. The lower interest rate and/or a longer repayment term could help you get a lower payment and some relief on your budget.

Debt consolidation can simplify paying bills each month, since you'd only have one loan or credit card payment to make in place of multiple payments. The key to benefitting from a debt consolidation loan is to commit to avoid new debt while you’re paying it off. You don’t want to end up with the loan and new credit card debt.

Financial hardship programs

Financial hardship programs don’t wipe out any of your debt. Instead, they provide temporary relief to people struggling with credit card payments. 

In a financial hardship program, your credit card issuer may:

• Agree to lower your interest rate

• Reduce your minimum monthly payment

• Waive certain fees for a specific period

• Give you a short-term pause on your payments

This relief is temporary, typically lasting six to 12 months. Allowing you to pay a little less over that period might allow you to get better control of your finances.

To apply, contact your credit card issuer and provide details about your financial situation. Approval isn't guaranteed. It's often based on your ability to show real financial hardship.

Pros:

• Hardship programs could make your debt more manageable in the short term. They do this by lowering payments or interest rates temporarily.

• They could help you avoid late payments and late fees or penalties.

Cons:

• Your original payment terms will likely be restored once the hardship period ends. This could cause financial strain if your situation hasn't improved.

• A hardship program might be reported to credit bureaus. That could affect your creditworthiness.

• Hardship programs are typically temporary. They aren't a long-term solution for ongoing financial difficulties.