If you have unmanageable debt and don’t think you’ll be able to pay everything off, debt forgiveness programs can be a viable option if they are able to meet their requirements. Just be sure to understand the pros and cons of these programs before you decide to apply for one. 

Trying to pay off large debts can feel like a never-ending process. Those who are dealing with high-interest-rate debts may feel even more disheartened. 

Although repaying what you borrowed along with the interest charges is difficult, there are other options available to you. Whether you face financial hardship due to unemployment or an unexpected medical emergency, there are several ways to tackle debt. 

Debt forgiveness can lighten the burden of your debt as long as you make an informed choice. This is an appealing option that, unfortunately, attracts a lot of scam artists. Do your research to avoid potential pitfalls.

Let’s explore a few legitimate debt forgiveness programs that you may be able to take advantage of.

What Is Debt Forgiveness?

Debt forgiveness is when a lender forgives some or all of the outstanding balance on a loan, alleviating you of responsibility for repaying that debt. Lenders are in the business of making money, so they won’t erase your balance just because you ask.

In order for a creditor to offer you debt cancellation, you’ll have to qualify for the program. Many of these rules can be complex, and forgiveness programs can be difficult to qualify for, but there are other debt relief options available. 

Debt forgiveness can also come in other forms, such as waiving off part of your outstanding balance through a debt settlement, where you work out a compromise with your lender to settle your debt entirely for some lower lump-sum payment that is often as low as 50% of your current balance.

How Does Debt Forgiveness Work?

When a lender releases you from the responsibility to repay some or all of the debt, you no longer need to worry about repaying that forgiven debt. There are many forms of debt forgiveness, and each works in a different way.

In any scenario where you don’t make a full repayment towards the money you borrowed, the remaining balance is forgiven debt. Theoretically, almost any type of debt can be partially or fully forgiven. But it is entirely up to your lender to decide whether this happens or not. 

For a lender to forgive the debt, it has to be in their best interest. This means that if your lender determines that you can indeed realistically repay your debt based on your income and assets, it’s very rare for your lender to forgive your debt.

How Do I Know if I Qualify for Debt Forgiveness?

Each debt forgiveness program has different qualification requirements. If you’re struggling with student loan payments, you may qualify for federal student aid.

For student debt relief programs, requirements include having a particular type of loan or being in specific public service occupations.

If you have credit card debt and are interested in applying for a debt settlement, it’s best to consult a debt settlement company.

A debt relief consultant will gather your information, such as your expenses, income, liabilities, and assets. Based on this information, they’ll provide you with the best debt forgiveness option(s) available to you.

Types of Debt Forgiveness

There are several types of debt forgiveness options available based on the type of debt you currently have. Let’s explore some of the most common types of debts that may be eligible for forgiveness.

Student Loan Debt

Student loan forgiveness programs are not easily accessible. Your options will depend on factors like how much you owe, your occupation, income, and the type of loan you have.

Most programs are available to those working in specific public service or education professionals. In very rare cases, student loan forgiveness may be available as part of a bankruptcy filing. 

The eligibility rules are quite strict, which makes it difficult for most student loan borrowers to get rid of their student loan debt. Not all types of federal student loans are eligible. Loans that are eligible are mainly Perkins loans, direct loans or Stafford loans, and Federal Family Education Loans.

Some repayment plans are also available through the U.S. Department of Education that may include forgiveness or cancellation of a part of their debt. 

It’s also important to remember that any debt that is erased is considered to be income and comes with an IRS tax bill. 

Check StudentAid.gov to see if you are eligible for loan cancellation.

Medical Debt

If you’re facing financial hardship, you may be eligible for a medical debt forgiveness plan. Many healthcare service providers offer forgiveness programs if you meet the eligibility requirements. 

You may have to provide documents like tax returns to prove that you have no means to pay off your outstanding bills.

Non-profit organizations such as the Patient Advocate Foundation and CancerCare also offer financial assistance to Americans facing hardship. Another option is to check if your healthcare provider offers an income-driven hardship plan. 

Those with low income may be eligible for financial assistance through these programs. In many cases, you may receive medical debt forgiveness through charity care. 

You’ll first have to apply for Medicaid before you can apply for an income-driven repayment program.  

Tax Debt

To qualify for IRS income tax forgiveness, you’ll have to be in a really tough financial spot. An Offer in Compromise is one way to get tax debt forgiveness. The only way to qualify for the program is if you are nearly insolvent and have almost no assets. 

The IRS has several means to collect from taxpayers by putting a lien on your bank or investment account(s), revoking your passport, selling your property, collecting part of your social security check, and holding your refund if you receive one in future years.

The IRS will only accept an Offer in Compromise if it believes there’s no other reasonable way to collect the tax money you owe.

When you apply for the program, you must pay a non-refundable fee. You must also pay 20% of the total offer amount when sending your application. In most cases, it’s better to apply for an income tax installment plan with the IRS if you have trouble paying your tax bills. 

Mortgage Debt

There are a number of programs available to FHA-insured homeowners at risk of foreclosure. If you’re behind on repaying your mortgage debt due to financial hardship, you can contact your mortgage provider to see if you are eligible for loss mitigation options.

Typically, mortgage debt forgiveness will be a last resort option for your lender. Unless they consider you to be insolvent, it will be difficult to qualify for one of these programs. If your mortgage is unaffordable, it might be better to consider refinancing or ask for a temporary payment pause to reduce some of your burdens. 

Credit Card Debt

Credit card debt forgiveness is available through debt settlement. If a credit card issuer believes that you have no means to pay the outstanding balance or that you may soon have no alternative but to file for bankruptcy, they may accept a settlement offer and forgive the remaining debt.

With debt mediation or debt settlement, a portion of your debt can be forgiven, and you may be able to save up to 50% of your debt before fees. 

Filing for Chapter 7 bankruptcy is another way of resolving your unsecured debts, such as credit card balances.

A bankruptcy filing can end garnishments and erase debts legally. Bankruptcy is an extreme measure that can have long-term effects on your credit reports and FICO scores, but if you have little to no assets, it may be right for you. 

Advantages and Drawbacks of Debt Forgiveness

While the main advantage of debt forgiveness is that you have to repay less, there are a few other advantages that you should consider.


  • With debt forgiveness, you will not have to worry about missed or late payments. Having less debt overall will also have a positive impact on your credit utilization
  • You will not be responsible for the forgiven amount once you are relieved from it. This means that your lenders won’t come after you to collect debts.


  • Any forgiven amount that is not connected in some way to a federally tax-exempt exception is considered to be taxable income to you in the year in which you are alleviated of the debt. You’re required to report any canceled debt on your income tax returns as ordinary income and are required to pay state and federal income tax on it at normal marginal income tax rates. If you have a considerable amount of forgiven debt, you will likely have a large tax bill to pay.  
  • There are several dishonest agencies that prey on people facing financial hardship. Be wary of shady practices and agencies charging a lot of money to help you qualify for a debt forgiveness program.

Alternatives to Debt Forgiveness

Debt forgiveness programs are difficult to qualify for because of the stringent criteria. There are several other debt-relief options available to consider.

Debt Management

If you need help repaying your debts, a credit counseling agency can enroll you in a debt management plan. Usually, this involves setting up a plan where you make a single monthly payment to a savings account that is administered by a debt management firm. This amount will then be distributed by the firm towards all your debts, as required on your behalf.

Your credit counselor may also be able to negotiate with your lenders to lower your interest rate(s) or waive late fees or late payment penalties. Enrolling in a debt management program means you will usually be restricted from opening any new credit cards or lines of credit until you first pay off all your existing debts. 

The long-term effects of establishing financial responsibility and paying off your debts are well worth the short-term sacrifices.  

Debt Consolidation

Debt consolidation is another option to consider if you have multiple smaller loans and credit cards. You can apply for a low-interest debt consolidation loan or a 0% balance transfer credit card if you have a “fair” to “good” credit score. You can then consolidate all your high-interest debts into a single monthly payment.

One of the biggest benefits of debt consolidation is that it will allow you to reduce your overall costs by replacing your high-interest (often variable-rate) debt with a new low-interest, fixed-rate loan. Compare the interest rates offered by different lenders to find one that will allow you to save the most.  

Debt Settlement

If you have a lot of unsecured debt and are not able to pay it all off, debt settlement is a viable option. A debt relief company will negotiate with your loan servicer to settle your account(s) for less than you owe.

Once you reach a settlement and pay the agreed lump sum, your account will be closed, and the remaining debt will be forgiven. After that, you can typically start fresh all over again.

This is a good option for those with missed payments, late fees, and debts in collection. 

Typically, debt settlement will take 24-48 months to complete and will allow you to save up to 50% of your total debt before the debt settlement firm’s fees are applied.

Check To See if You Qualify for Debt Forgiveness

Debt forgiveness can provide you some reprieve from your financial burden by erasing some or all of your debt if you are eligible. Whether you qualify for it will depend on the type of debt you have, your income, and other factors.

Even if you’re not eligible for these programs, there are many other debt relief programs available to help you regain control of your finances.

At TurboDebt, we can help you find the right debt relief program with our counseling, consultation, and planning services.

Connect with our debt relief professionals for a free consultation today.

Thousands of positive TurboDebt reviews from our satisfied clients show just why our debt relief services are so effective.