Want to pursue debt forgiveness this May? Ask yourself these 3 questions first

Don't start the debt forgiveness process until you've asked yourself a few important questions. Getty Images

If you've found yourself struggling to afford your debt payments recently, you're far from alone. A significant percentage of borrowers are facing increasing financial strain in today's unusual economic climate, and there are a few big reasons for that. One is that credit card rates are closing in on an average of 22% currently, making it easy for balances to spiral despite your best efforts. And, when you add in the rising costs of living, the high rates on other borrowing products and the uncertain economic landscape, you have a perfect storm for financial distress. 

As a result, many borrowers are starting to explore the debt relief strategies they might have once dismissed. One of those options is debt forgiveness, which is a process in which you try to work out a deal with your creditors to pay less than the total balance you owe. If those negotiations are successful, debt forgiveness can offer you meaningful relief, allowing you to pay 30% to 50% less than you owe on average. Those hefty potential savings are why some borrowers see debt forgiveness as their best shot at regaining control of their debt issues.

But debt forgiveness isn't always the best solution. While it can deliver real results when used correctly, it also carries risks like credit score damage, tax implications and the possibility that your creditors simply won't agree to settle. So, before you start this process, be sure to ask yourself a few key questions first. Below, we'll examine three to consider if you want to pursue debt forgiveness this May.

Check your credit card debt forgiveness qualifications now.

Questions to ask before pursuing debt forgiveness this May

By asking yourself these critical questions, you may be better prepared to determine whether this strategy aligns with your financial goals and circumstances:

Do I meet the requirements for debt forgiveness?

While debt forgiveness can be a smart route to take, the reality is that not everyone qualifies for this type of debt relief. Creditors will typically only consider settlement offers if they believe you're truly unable to repay the full amount. This usually means that you need to be significantly behind on your payments (often by 90 days or more) and demonstrate genuine financial hardship through unemployment, medical issues or other documented circumstances.

Debt forgiveness also works best with unsecured debts like credit cards, personal loans and medical bills. Secured debts like mortgages and car loans rarely qualify since the creditor can simply repossess the collateral. So, if you're trying to pursue debt forgiveness for student loans that you can no longer afford or for car payments that have become unaffordable, you may need to look at your other options instead. 

And, the requirements may be even more stringent if you're planning to work with a debt relief company, as most expect you to have at least $5,000 to $10,000 worth of unsecured debt to qualify for enrollment. You'll also need to have the financial resources available to save for a lump sum payment, as creditors typically expect you to pay the negotiated amount in full shortly after an agreement has been made.

Learn more about debt forgiveness (and your other debt relief options) today.

Have I considered my other debt relief options?

It's easy to latch onto debt forgiveness as a quick fix, but it's rarely the only option — and it's not always the right one for every situation, either. So, before committing, make sure you've carefully weighed the pros and cons of the other debt relief strategies available to you.

For example, a debt management plan through a credit counseling agency can help you pay off your full balance over time — often with reduced interest rates and fees — without the credit score damage or tax consequences that come with settling your debt for less than what's owed. If your credit is still decent, you might also explore debt consolidation, which rolls multiple balances into a single, lower-rate loan, making the repayment process more manageable.

In more extreme situations, filing for bankruptcy might actually be the better long-term solution, depending on your financial profile. While bankruptcy also impacts your credit, it may give you broader protection against creditors and wipe out more debt types than settlement can.

Do I need expert help with negotiations?

While it's technically possible to negotiate a settlement on your own, it's rarely easy. Creditors can be tough negotiators, and if you're not experienced, you might walk away with a worse deal than you could have secured with professional help. That's where working with a reputable debt relief company can make a big difference.

These companies specialize in negotiating with creditors and can often secure lower settlement amounts. However, they don't work for free. Many debt relief companies charge fees based on how much they save you or on the total debt enrolled, so you'll need to weigh whether the potential savings are worth the cost.

So, if you're confident in your negotiation abilities and willing to put in the time, you could choose to approach creditors yourself. However, securing professional support may help you avoid costly missteps, so make sure to answer this question honestly before moving forward with any plan.

The bottom line

Debt forgiveness can be a powerful tool when used under the right circumstances, but it's not a perfect solution. Before you commit, take the time to evaluate whether you qualify, understand your alternative options and decide whether professional help is right for you. Asking yourself these key questions now can save you from bigger headaches — and deeper financial trouble — in the future.

Angelica Leicht

Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.