Does credit card debt forgiveness make sense if the economy is improving?

Having a portion of your debt forgiven can offer big relief from your high-rate card balances — but it may not always be the debt relief strategy to pursue. Boy_Anupong/Getty Images

Inflation might be easing and the job market may seem steady, but for many Americans, their financial footing feels anything but stable. According to the latest Consumer Price Index data, annual inflation dipped to 2.3% in April, marking yet another month of modest declines. That's progress, of course, but groceries, gas, rent and other essentials remain stubbornly expensive after years of higher-than-ideal inflation. And while unemployment hasn't spiked, many people are still struggling to keep up with the rising cost of living.

At the same time, interest rates remain elevated, with average credit card APRs hovering close to 22% on average — and many borrowers are stuck with much higher rates on these short-term borrowing tools. Even those who are doing their best to stay current on payments may be finding themselves in a cycle of making just the minimum payments and barely seeing their balances budge. So while there appear to be bright spots within the economic landscape right now, the financial reality for many households still feels bleak.

This tension raises an important question: Should you still consider credit card debt forgiveness — also known as debt settlement — when the economy appears to be on the mend? Here's what to know about pursuing this debt relief option when the broader economic picture is showing signs of recovery.

Find out how to get help with your high-rate credit card debt today.

Does credit card debt forgiveness make sense if the economy is improving?

It might seem counterintuitive, but for many borrowers, the answer is yes, credit card debt forgiveness can, and often does, still make sense when there are signs of economic improvement. Economic improvement doesn't always trickle down in a way that makes life more affordable, after all, especially when you're drowning in credit card debt. Inflation might be cooling, and Federal Reserve rate cuts may be on the table for later this year, but none of that reverses the damage already done to household budgets. 

And, perhaps more, importantly, it doesn't mean your credit card interest rates are going down any time soon. Credit card APRs are tied to the prime rate, but card issuers also set their own rates based on a range of factors. So, even if the Federal Reserve eventually cuts rates this year, it's unlikely to result in a dramatic drop in credit card interest charges anytime soon. 

So even if the economy shows signs of stabilization, the cost of carrying credit card debt remains brutal. And that's where credit card debt forgiveness comes in. For people overwhelmed by their balances, settling for less than what's owed can be a way to stop the financial bleeding. It doesn't erase the debt entirely, but it can drastically reduce the debt obligation and offer a path out of a debt cycle that otherwise feels endless.

That's especially important right now, as many households are stuck in a strange limbo: They're technically earning enough to get by, but not enough to catch up on their debts. So, the economy may be showing signs of improving, but if you're still maxed out and struggling to make ends meet, that improvement might feel meaningless. Debt forgiveness offers something the broader economy can't, though: targeted relief.

That said, debt forgiveness won't solve every financial problem, and it does come with trade-offs, like a hit to your credit and potential tax liability on forgiven amounts. But for many, the alternative is worse: years of mounting interest, late fees and financial stress. So, while an improving economy doesn't automatically make credit card debt easier to manage, debt forgiveness might offer the relief you need now.

Chat with a debt relief expert about your options now.

How to decide if credit card debt forgiveness is the right option for you

Debt forgiveness can be a useful tool for the right borrower, but it won't be the best option for everyone. Here are a few signs it might make sense for you:

Your debt feels unmanageable, even with a steady income. If your credit card balances are ballooning despite regular payments, or if you're only able to cover minimums while the interest keeps compounding, debt forgiveness could help you break that cycle. 

You're falling behind or already delinquent. Debt settlement is typically reserved for accounts that are at least several months past due. If you're already receiving collection calls or notices, debt forgiveness might be a realistic path to avoid worse outcomes like lawsuits or wage garnishment.

You have access to a lump sum or can afford structured payments. Most successful settlements involve a one-time payment in return for the remainder of the balance being forgiven. If your finances have improved enough to allow this, now could be the ideal time to act.

You've explored alternatives but none are feasible. Balance transfer cards and debt consolidation loans often require strong credit, something that many people overwhelmed by debt don't have. If those doors are closed, debt forgiveness might be your best shot at a negotiated resolution.

The bottom line

Despite some positive headlines, the financial pressure caused by today's economic landscape is still intense. Inflation might be slowing and the odds of a rate cut are improving, but those shifts haven't been enough to meaningfully reduce the cost of living or make high-rate credit card debt more manageable. So, credit card debt forgiveness remains a viable option, especially for people who are behind on payments or can't see a way out of debt with the tools they currently have. 

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.