How Can I Find Government Credit Card Debt Relief Programs?

Maybe you’ve seen TV ads saying “you now have the right” to settle your credit card debt. Or they may tout a new government program that will help with credit card debt. So-called government debt relief ads like these are misleading and could even be fraudulent.

The truth is, the government won't cancel your credit card debt. And you’ve had the right to negotiate with your creditors all along. 

If your credit card debt has become overwhelming, you can handle it with legitimate strategies. Debt relief options include debt settlement, debt consolidation, debt management, and more. Here are a few more details that could help you.

The Truth About Government Credit Card Debt Forgiveness 

There are no government programs designed to get rid of credit card debt. It may sound wonderful, but it simply doesn't exist. Be wary of any company claiming otherwise. Such claims are misleading at best. At worst, the goal of these companies is to take your money, leaving you in worse financial shape.  

When you’re flooded with ads about so-called government-sponsored credit card forgiveness programs, it's tempting to believe the promises. However, the ads are designed to make you think there's a magic path out of credit card debt. Once you know the signs, it's easier to recognize a misleading company. Look out for companies that:

• Make first (unsolicited) contact. If a company contacts you first, it's a red flag. It may mean the company knows you're in credit card debt and hopes to take advantage of it.

• Make promises that are too good to be true. Any time someone promises their company can eliminate your debt or connect you with someone who can wipe out your credit card debt, it's a red flag. 

• Ask for upfront payments. A company representative may befriend you, make you believe they're an ally, and say you’ll need to send money so they can get started. The truth is, federal law prohibits legitimate debt settlement companies from charging fees before they've settled your debt.  

• Advise you not to contact creditors. Less-than-legitimate companies don't want you to contact your credit card company because they don't want you to learn the truth—there aren’t any government programs to wipe out credit card debt. 

• Lack of transparency. Whenever they answer your questions with vague answers or pressure you into making a quick decision, it's a red flag. Legitimate debt settlement companies are happy to provide clear answers and written agreements outlining services and fees.  

Don't be discouraged that there’s no government program. Credit card debt forgiveness may still be within reach. For example, creditors may be willing to reduce your outstanding balance or make it easier for you to pay. 

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Do Government Debt Relief Programs Exist?

Government debt relief programs exist for certain types of debt, such as student loans, mortgages, and business debts. In some cases, the IRS might let you settle your tax bill for less than you owe. There may also be state-level programs aimed at helping particular groups of people. Here are some examples. 

SCRA

Government programs could help with credit card debt in a couple of specific cases. For example, if you serve in the military, the Servicemembers Civil Relief Act (SCRA) could get you interest rate caps and other protections designed to relieve financial hardship.

To be eligible for SCRA, you must be one of these: 

• An active-duty member of the Army, Marine Corps, Navy, Air Force, or Coast Guard

• A member of the Reserve component when serving on active duty

• A member of the National Guard mobilized under federal orders for more than 30 consecutive days

• An active-duty commissioned officer of the Public Health Service or the National Oceanic and Atmospheric Administration

Note: SCRA rights may be exercised by anyone holding a valid power of attorney for the servicemember. Some SCRA protections apply to dependents. 

Bankruptcy 

Bankruptcy is another way to relieve debt, but it’s not exactly a government debt relief program. It’s a legal process. Credit card debt might be discharged (forgiven) depending on the type of bankruptcy you qualify for.

• Chapter 7 bankruptcy. Eliminates unsecured debt like credit cards. If you qualify for Chapter 7, most or all of your credit card balances could be erased in a few months. Bankruptcy could help you reset your finances, but Chapter 7 remains on your credit report for up to 10 years. That gives you plenty of time to get back on your financial feet while you rebuild your credit (and rebuilding can begin as soon as you file).

• Chapter 13 bankruptcy. Sets up a three- to five-year repayment plan to pay off your balances. Because credit card debt is considered low-priority by the court, you may only have to pay a portion, with the remainder erased at the end of the plan. Chapter 13 remains on your credit report for up to seven years. You can take steps to rebuild your credit in the meantime.

When filing for bankruptcy protection, you'll be expected to provide documentation, which may include: 

• Identification

• Bank statements

• Tax returns

• Pay stubs

• Property documents

• List of creditors

• List of assets

• Credit counseling certificate

Otherwise, debt relief programs generally don't apply to unsecured debt, such as credit card or personal loan debt. If you fall behind on your payments, consider looking for non-governmental sources of support.

Do Government Debt Relief Programs Exist for Credit Cards?

No government debt relief programs specifically help with your credit card payments. However, there are government regulations that help protect you and ensure you’re dealt with fairly when you seek credit card debt relief. 

Government regulations for credit card debt relief

The federal government has several laws and regulations that protect consumers. These two help to ensure fair practices among debt relief providers:

• The Credit Card Debt Relief Act of 2010. This law prohibits debt settlement companies from charging upfront fees for their services. It’s meant to help you avoid bogus operators or companies that charge more than what’s fair for debt relief. 

• The Uniform Debt Management Services Act. This law helps states regulate debt settlement and credit counseling services. The law caps fees for debt management services. At Freedom Debt Relief, clients pay fees equal to 15-25% of their enrolled debt. 

Who Qualifies for Credit Card Debt Forgiveness? 

Credit card companies would rather receive some money than nothing at all. That’s why they might be willing to work out a compromise if you’re at risk of defaulting or you’ve missed payments. Missing payments is usually a clear indication that you’re dealing with financial hardship. Here are some other indicators of financial hardship that may qualify you for credit card debt forgiveness:

• Job loss. Whether the company you work for closes or conducts layoffs, a lack of income is a sign that you’re facing hardship.

• Death in the family. Let’s say your spouse dies, and they were the primary breadwinner in the household. You may now have less money to cover expenses.

• Divorce or separation. Divorce can be expensive, and living apart from your spouse can cause a significant drop in income. This change in income may make paying your credit card bills more difficult, at least in the short term. 

• Medical issues. Medical debt creates long-term financial distress, with medical bills causing a large percentage of U.S. bankruptcies. Medical debt is a common cause of financial hardship. 

A credit card company may calculate your debt-to-income ratio (DTI) to assess your financial burden. Your DTI ratio compares your monthly debt payments to your monthly income. In other words, DTI shows how much of your monthly income goes to debt. The lower the ratio, the more money you should have to cover bills. The higher the ratio, the tighter your overall budget will likely be. 

Be honest with your creditors about what's going on. Chances are, there's nothing you can tell them that they haven't heard before, so don't be shy. 

Struggling With Credit Card Debt? Check Out These Alternatives to Government Debt Relief Programs

Credit card debt solutions are designed to help make your debts more manageable. You could take different routes, each with pros and cons. Here are some of the options:

• Debt management plan

• Debt consolidation

• Debt settlement

• Talking to creditors about hardship programs

• Bankruptcy

• Balance transfer card 

What is a debt management plan?

A debt management plan, or DMP, is a debt relief solution that allows you to streamline monthly credit card payments. A nonprofit credit counseling agency reviews your budget and credit card debts. They create a personalized plan to fully pay off your unsecured debts in three to five years. While you’re in the program, they provide guidance and education about managing your finances. 

You make one monthly payment to the credit counseling agency. That payment is then distributed among your creditors. Depending on the terms of your plan, your credit card companies may agree to waive fees or reduce your interest rates.

The trade-off is that you typically must close your credit accounts as a condition of your enrollment. This is likely to cause credit score damage until the balances are paid off. Most credit counseling agencies charge a modest fee for their services (typically $25 to $50 per month). They can afford to provide low-cost services because they are funded by credit card issuers.  

The monthly payment in a DMP is typically very high, making it hard to stick with the program over the long term. A DMP is for someone who can afford to fully repay their debts but needs the accountability a credit counselor provides.

Debt management plan pros 

• Streamlines monthly debt payments 

• Potential for fee waivers, interest rate reductions 

• Financial education and support

Debt management plan cons 

• Unsecured debts only

• Most people pay monthly fees

• You'll probably have to close your credit cards

• Initial negative impact on credit score

• Doesn’t reduce your debt

• High monthly payments

What is debt consolidation?

Debt consolidation involves using a new loan to pay off multiple smaller debts. Most people use either a personal loan or a home equity loan to consolidate debts. Going forward, you make only one payment to the debt consolidation loan. Debt consolidation loans are typically repaid over many years. Debt consolidation makes the most sense if you can qualify for a lower interest rate and you want a set pay-off date for the debts that you’re consolidating. That way, you could simplify the payments and lower the cost of your debt. Credit card debt consolidation can be particularly effective if you swap high-interest debt for lower-interest debt. 

The big risk with debt consolidation is that it leaves the door open to taking on more debt. Consider closing your credit card accounts after you've consolidated the debt.

Debt consolidation is for someone who can afford their debts and has a good enough credit score to qualify for a new loan.

Debt consolidation pros 

• Streamlines monthly debt payments 

• Potential for a lower interest rate 

• Could help you build and maintain good credit if you make your payments on time and avoid running up credit card debt

Debt consolidation cons 

• Not everyone qualifies for a debt consolidation loan that would improve their finances 

• Most people pay loan fees when they get a new loan

• Leaving credit card accounts open could be a temptation to create new debt

• Doesn’t reduce your debt

What is debt settlement or debt relief?

With debt settlement, you (or someone negotiating on your behalf) work out an agreement for your credit card company to accept less than the full amount you owe and forgive the rest.

It's possible to negotiate a debt settlement on your own. Or you could ask a professional debt settlement company like Freedom Debt Relief to negotiate on your behalf. 

Settling could reduce your debt, but you’ll need to have something to offer your creditors. To save money for making offers, most people choose to stop making debt payments. Instead, they make monthly contributions into a dedicated account. Besides helping you save up money for offers, stopping payments clearly signals to your creditors that you’re in financial distress. That could make them more inclined to work with you, but stopping payments will have a negative impact on your credit standing. Negotiations begin when you have enough saved up to make an offer.

Here's a snapshot of how it works: 

• Designate a place where you'll build up funds for offering your creditors. It's helpful to use an account separate from the money you spend. If you work with a professional debt settlement company like Freedom Debt Relief, they'll set up a dedicated account for you. You own and always control the account.

• Monthly deposits. Each month, you make regular deposits to the account. The goal is to save a lump sum of money that can be used to negotiate your debt. If you work with a professional debt settlement company like Freedom Debt Relief, we’ll walk you through how to communicate with your creditors during this time.

• Negotiations begin. Once you have enough money, the debt settlement company begins to negotiate with the credit card company (or companies) you owe. The debt settlement company negotiates with creditors to settle the debt for less than what is owed. 

• Pay the reduced amount to clear the debt. After you’ve approved a negotiated settlement, your creditor is paid from your dedicated account. After at least one payment has been made, the debt settlement company takes its fee from the same account. Debt settlement fees are typically between 15% and 25% of the enrolled debt.

The monthly payment in a debt settlement program is designed to be affordable. Many clients settle their first debt within months. In fact, 60% of consumers who enter into debt settlement get good results in as little as three months. That means that within 12 weeks, at least one of your debts could be behind you. The entire program could last two to four years.

One thing to know is that the IRS may view forgiven debt as taxable income. Let's say you have $25,000 in credit card debt, and $5,000 is forgiven. The IRS may consider that $5,000 ordinary income. However, if you're insolvent when you settle the debt (in other words, if the total of what you owe is greater than what you own), it's unlikely you'll have to pay income taxes on forgiven debt. Talk to a qualified tax professional before you make the decision to seek debt settlement.

Debt settlement is for someone who intended to fully repay their debts but now can’t. It might be an option to consider if you’re experiencing ‌financial hardship. If you’ve already fallen behind with payments and can't figure out how you'll get back on top, negotiating with creditors is a better strategy than ignoring the problem. 

Debt settlement pros 

• Could significantly reduce your debt

• No fees if you DIY

• Get rid of debts faster than making minimum payments

• No upfront settlement fees

• Affordable payment

• Private 

• Support from debt experts

Debt settlement cons 

• Unsecured debts only

• Forgiven amounts may be taxable 

• You’ll pay fees if you work with a professional debt settlement company

• Negative impact on credit standing

• Creditors could still pursue you for the debts

What are hardship programs?

If your credit card debt is the result of a temporary hardship such as job loss, medical issue, or other difficulty, talk to your card issuer and ask for help. For example, imagine you live in an area hit by a hurricane and must take immediate steps to secure your damaged roof and protect your home while you find housing. You expect your insurance company to reimburse some of your costs, but you must come up with the money to cover immediate expenses. You don’t know how long it will be before you’re back on level financial footing.

While creditors aren't obligated to offer hardship solutions, it's in their best interest to help you get through a rough spot and keep you as a customer. If you contact them before you fall behind on payments, so much the better. 

Here are some of the hardship measures you might be able to access:

• Fee waivers

• Interest rate reductions

• Minimum payment reductions

• Temporary payment suspensions

Call, email, or message your credit card company to ask what help is available. Be ready to explain your situation, including the amount you can pay. Ask what documents you need to provide, and whether there are any other program requirements. 

Hardship program pros

• Temporary relief could help you get back on track

• May avoid being reported for missed payments

• May protect your credit score

Hardship program cons

• Hardship programs are temporary

• You still accrue interest on your balance

• Your card issuer may put limits on your account

• Doesn’t reduce your debt

What is bankruptcy?

Bankruptcy is a legal process for dealing with debt. Bankruptcy happens in a federal court. 

A Chapter 7 bankruptcy can eliminate credit card debts and other unsecured debts, like medical bills. The court could sell some of the things you own and use the money to cover your debts.

In a Chapter 13 bankruptcy, you make payments to the court for five years (three years if you’re low income). You’ll have to pay all of your disposable income into the plan. The court will periodically review your income and expenses and adjust if necessary. At the end of your plan, remaining unsecured debts are discharged (forgiven). 

Bankruptcies stay on your credit report for seven years (Chapter 13) to 10 years (Chapter 7). 

Bankruptcy pros

• Temporarily stops collections 

• Temporarily stops foreclosure actions

• Could reduce your debt

• Creditors must comply with whatever the court decides. They can’t opt out.

Bankruptcy cons

• Public record

• Initial credit score damage

• Most people pay court and lawyer fees

• Some debts aren’t eligible (like student loans or past-due child support)

What is a credit card balance transfer?

With a credit card balance transfer, you move the outstanding balance from one credit card to another, typically with a lower interest rate. Let’s say you have $10,000 on a card with a high interest rate, and you qualify for a card with a promotional 0% APR for 18 months. You’ll pay a fee for the transfer, typically 3% to 5%, so the balance will be slightly higher. Here’s how the two cards compare:

Credit card balance transfer pros

• Potential to save on interest

• Debt consolidation could streamline payments

• Could speed up payment since there’s no interest for a set time

Credit card balance transfer cons

• Good to excellent credit needed to qualify

• Fee to transfer balance to new card

• Potential to wind up in worse financial shape if you continue spending on the new card

You Don't Need Government Debt Relief to Tackle Your Credit Card Debt

While credit card government debt relief programs aren't a reality for most people, there are other ways to get help. The most important thing is to be proactive in finding the right debt solutions. 

If you're considering credit card debt relief programs, research service providers carefully. Check the fees and online reviews to find out what other people are saying before you commit. Beware of any debt relief company that doesn’t tell you about the pros and cons of debt settlement services or demands an upfront fee.

Step-by-Step Guide to Finding Debt Relief

When it comes time to find debt relief, it's all about taking it one step at a time. 

Step 1: Assess your financial situation

• Gather documents. Collect any statements associated with your current financial situation. This includes credit card bills, outstanding loans, and other monthly expenses.

• Total debt. Add up all debts to get a clear picture of how much is owed.

• Review income. Add together all sources of monthly income to better understand how much you’re working with and how much you have available to put toward credit card bills.

Step 2: Explore do-it-yourself (DIY) options

Decide whether you want to tackle your credit card debt alone. If you decide to go the DIY route, here are some of your options:

• Debt snowball method. Pay off the smallest debt first while continuing to make minimum payments on larger debts. Once you've paid off one debt, roll the money you were paying toward that debt over to the next one on your list. As you continue, you'll have more money to apply to each debt until they're all paid off.  

• Debt avalanche method. Pay off debt with the highest interest rate first to minimize the total interest paid. Once the debt with the highest interest rate has been paid off, roll the money you were paying to the debt with the next highest interest rate. Continue until all your credit card debt is paid off. 

• Negotiate with creditors. Contact creditors directly to discuss lowering interest rates, waiving fees, or setting up a new payment plan that better fits your budget.

Step 3: Reach out to a professional

Schedule a free appointment with a professional debt consultant to discuss your debt, goals, and options available. Your consultant can help you come up with a debt relief plan that works with your budget. For example, if you decide to work with Freedom Debt Relief and enter a debt settlement program, your only job is to:

• Make one monthly deposit

• Approve settlement offers as negotiated by your consultant

• Move forward with life

If debt settlement isn't the right choice for you, your consultant can help you home in on what would work best. Here's a birds' eye view of some of the options: 

You probably have questions, and we have the answers you're looking for. If credit card debt has become a concern, solutions are available, even without a government program.