Your Credit Card Debt Was Forgiven? Now What?
Alright, let’s start with a little reality check: If you’ve just had credit card debt forgiven, you might feel like you won the financial lottery. Congrats! But before you start mentally spending that extra breathing room, let’s talk about what happens next. Because (and I hate to be the bearer of fine print) debt forgiveness isn’t always the clean slate it sounds like.
Oh, it helps—big time. But there are a few strings attached. (Of course, right?) Let’s sort through ’em, figure out what to do next, and—most importantly—make sure you don’t end up right back in the same pile of financial stress.
First, Let’s Make Sure That Debt Was *Really* Forgiven
Not to burst your bubble, but you want to confirm that your credit card company actually forgave the debt, not just wrote it off internally. “Charge-off” and “forgiven” aren’t always the same thing. If they charged it off, it just means they gave up on collecting for now—not that they won’t sell it to a collections agency later (oh joy!).
Call the creditor. Ask for written confirmation. If you see anything about “settled for less than owed,” that means you technically didn’t pay the full balance—which can ding your credit score. (More on that in a sec.)
Wait, Do I Owe Taxes on This?
Ah, the IRS, America’s least favorite plus-one to every financial party. Here’s the deal: If a creditor forgives $600 or more, they’re supposed to send you a 1099-C form, which means—surprise!—that forgiven amount might count as taxable income.
Before you start hyperventilating, check if you qualify for the insolvency exemption. Simple version: If you were broke when the debt was forgiven (meaning your debts were greater than your total assets), you might not have to pay taxes on it. A tax pro can help with this. (Because, let’s be honest, the IRS isn’t known for making things simple.)
But… What Happened to My Credit Score?
Here’s the part nobody likes to talk about—having your debt forgiven usually comes with a little credit score damage. Paying a debt in full? That’s great for your score. Having a debt “settled” or forgiven? Not as great.
But before you panic, remember: Your credit score isn’t carved in stone, and you can rebuild it. The key is making good financial moves from here on out.
What to Do Now (So You Don’t End Up Here Again)
Look, I’m not gonna tell you to stop drinking lattes or build some rigid budget you’ll never follow. That’s not real life. But if you don’t change anything, this will probably happen again. So, let’s make a plan based on your real spending habits.
- Track Your Spending for a Month. Not in some judgy way—just watching where your money actually goes. You’ll probably find a few “Wait… I spend HOW MUCH on takeout?!” moments.
- Build a Plan Around Reality. Forget traditional budgeting. The goal isn’t to restrict—it’s to know. Once you see where your money is going, you can shift things without going on a strict financial diet.
- Get a “Cushion” Before You Worry About Anything Else. If you don’t have at least a little emergency fund, life will keep throwing you back into debt. Even a few hundred bucks can keep you from relying on credit again.
- Fix Your Credit Score Over Time. Pay bills on time, don’t max out your cards (even if you reopen one), and keep old accounts open if possible. Credit scores respond well to small, consistent good decisions.
Oh, and—this part is crucial—try not to see this as a moral failing. Debt isn’t a character flaw. It’s just math wrapped in emotion, mixed with a system designed to keep you borrowing. Your job isn’t to feel bad; it’s to figure out what works for you.
FAQ: The Stuff People Google About Forgiven Debt
Will forgiven credit card debt show up on my credit report?
Yep, it sure will. It will usually show as “settled” or “charged off” rather than “paid in full,” which can ding your credit score—but not forever. Keep making good money moves, and it’ll recover.
Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.
Can a creditor come back later and try to collect?
If it was fully forgiven and documented in writing? No. But if it was just charged off internally, they can still sell it to collections later. (Fun.) Always get confirmation. And never lose that confirmation. Some of these debts can resurface years later with claims that it was never forgiven.
Should I open a new credit card after debt forgiveness?
That depends. If you’ve got zero self-control with credit cards, maybe sit this round out. But if you use credit responsibly (and can pay in full every month), a low-limit card could help rebuild your score.
Final Thought: This Is Your Fresh Start
Listen, I’ve been there. Debt feels like a giant, guilt-soaked boulder strapped to your back. Getting any of it forgiven is a gift—but what you do next is what really matters. No shame, no self-blame—just a “what’s next?” attitude.
Stick with me, and let’s make sure you never go through this mess again. Subscribe to the newsletter for real-world money advice that actually works, and check out the Get Out of Debt Guy podcast for more no-BS guidance.
You’ve got this.
