When financial pressures mount and debt payments become overwhelming, many people begin searching for potential relief options, like debt forgiveness, which reduces your balance and makes it easier to pay off the remainder of whats owed. But personal loans aren’t usually talked about when people talk about debt forgiveness. Credit card debt, medical bills, and student loans are. After all, the government has programs to forgive student loans and other types of debt, but there aren’t any easy ways to get out of personal loans.
This creates confusion for borrowers who are seeking relief due to financial hardships that have drastically impacted their ability to repay their debts. There is still hope if you want to settle your personal loan debt for less than what you owe, though. Debt relief comes in many forms, and while outright forgiveness of personal loans is rare, there are strategies you can use to try and reduce or eliminate this type of unsecured debt.
Before you try and have your personal loan debt forgiven, though, its important to understand what these options are and how they work, as the decisions you make now could impact your financial future for years to come.
Personal loans can provide funds when you need them, but repaying them can be challenging if your financial situation changes This leaves many borrowers wondering can a personal loan be forgiven?
While personal loans don’t have the same formal forgiveness programs as federal student loans, you still have options if your personal loan becomes unaffordable Debt relief strategies like settlement and bankruptcy may reduce or eliminate your balance, providing a path to forgiveness
In this comprehensive guide, we’ll explore common questions about personal loan forgiveness, including:
- How personal loan forgiveness works
- Qualifying for personal loan debt relief
- Pros and cons of forgiveness vs repayment
- Alternatives like hardship programs and refinancing
How Personal Loan Forgiveness Works
With personal loans, the lender provides money upfront in exchange for fixed payments over a set repayment term. This differs from products like credit cards where you can carry a balance indefinitely.
When you take out a personal loan, you promise to pay back the full amount plus interest. If, on the other hand, your finances change in a way that makes payments hard or impossible, your lender may agree to forgive some of your debt.
Lenders aren’t required to lower your balance, but you can try to get one. Your success depends on factors like:
- Your current income and expenses
- Assets available to repay the debt
- The lender’s policies and programs
- Your credit score and history
Settlement often involves making a lump-sum payment to satisfy the remaining debt. Bankruptcy discharges personal loans entirely in some cases. We’ll explore these strategies next.
Qualifying for Personal Loan Debt Relief
Personal loan forgiveness isn’t guaranteed, but certain debt relief options can help you settle, reduce, or eliminate this type of unsecured debt. Here are some of the most common ways borrowers find relief:
Debt Settlement
Debt settlement, which is sometimes called “forgiveness of debt,” is when you talk to your lender about paying a smaller amount. This amount of the settlement is based on what the creditor is willing to take.
You can try to settle debt yourself, but many people hire a debt relief company to negotiate on their behalf. These firms have experience navigating the process and improving settlement offers. If they secure a deal, you’ll make a lump-sum payment to satisfy the reduced amount.
If a debt settlement goes through, consumers usually end up paying 20% to 30% less than what they originally owed. But not all lenders will agree to settle, and any debts that are forgiven may be taxed as income.
Bankruptcy
Filing for bankruptcy is a serious move with long-term consequences, but it can effectively discharge or eliminate personal loan debt.
Under Chapter 7 bankruptcy, the court can wipe out eligible unsecured debts including personal loans and credit cards. Chapter 13 allows you to restructure debts into a 3-5 year repayment plan.
Bankruptcy damages your credit for years. However, if you have no means to repay, it may provide your only path to a financial fresh start. An experienced bankruptcy attorney can advise if it’s the right choice.
Hardship Programs
Some lenders offer hardship programs to provide temporary financial relief. For example, you may qualify to pause payments, reduce interest rates, or lower monthly payments for several months.
Hardship programs don’t forgive balances outright, but they can help you get through periods of reduced income until you regain your financial footing. Contact your lender to see if hardship options are available.
The Pros and Cons of Personal Loan Forgiveness
Deciding whether to pursue forgiveness requires weighing the advantages against drawbacks like credit damage and tax liabilities. Consider these key pros and cons:
Pros
- Settles debt for less than you owe
- Reduces or eliminates burdensome payments
- Stops accruing interest costs
- Frees up cash flow for priorities
- Allows a fresh start after bankruptcy
Cons
- Forgiven amounts may count as taxable income
- Severely damages credit, limiting access to loans
- Limits future options due to credit impacts
- May still require large lump-sum settlement payment
- Bankruptcy strips all eligible assets
As you evaluate options, think about your long-term goals. While forgiveness provides immediate relief, the credit impacts could limit finances for years. A debt management plan may allow you to repay debt without settling, avoiding credit damage.
Alternatives to Personal Loan Forgiveness
If your lender doesn’t agree to settle or you want to avoid bankruptcy, you still have options to manage unaffordable personal loan debt:
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Refinancing: If you have sufficient income and a good credit score, you may qualify to refinance your personal loan at a lower interest rate, reducing your monthly payments.
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Debt management plan: A DMP provided by a credit counseling agency can consolidate debts into one payment and secure lower interest rates from lenders. While you repay the full balance over 3-5 years, it simplifies payments and may save on interest.
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Budgeting and expense tracking: Review your budget to identify areas to cut spending and funnel more cash toward debt repayment. Budgeting tools can help track where your money goes.
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Debt avalanche or snowball: Strategic repayment focused on highest-interest or smallest debts first helps you pay down balances quicker.
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Side hustles: Taking on part-time work or monetizing skills can provide extra income to put toward debts. Every extra dollar repaid stops interest growth.
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Negotiate yourself: You can try contacting your lender directly to request reduced payments or interest rates. Provide documentation of your situation and be firm but polite.
Can a Personal Loan be Forgiven? The Bottom Line
While personal loans don’t have dedicated forgiveness programs, you can reduce, settle, or eliminate unaffordable balances through debt relief strategies like settlement and bankruptcy. These options provide a clean slate but also carry credit consequences to consider.
Thoroughly evaluate your specific situation to determine if personal loan forgiveness aligns with your financial goals. In some cases, repayment alternatives like debt management may allow you to become debt-free without settlement. But for borrowers in dire straits, forgiveness could be the lifeline needed to regain financial stability.
How to have your personal loan debt forgiven
Its generally possible to reduce your personal loan debt by using the right debt relief strategies. Here are some of the most common options:
Debt forgiveness (also known as debt settlement) involves negotiating with your lender to reduce the total amount you owe. This can be done independently or through a debt relief company, but if your lender agrees, youll typically make a lump-sum payment in return for a reduced balance. While the outcome can vary, and while your creditors arent required to forgive any portion of your debt, successful negotiations with the help of a debt relief company can result in paying 30% to 50% less than your original balance on average.
Some lenders may also offer hardship programs for borrowers who are facing financial difficulties. If you qualify, these programs may temporarily lower your interest rate, reduce your monthly payment or even allow you to pause payments for a period. While these programs dont forgive your debt outright, they can provide much-needed relief while you get back on your feet.
Filing for bankruptcy should be a last resort option given the serious financial consequences it can come with, but doing so can effectively eliminate personal loan debt, in some cases. For example, Chapter 7 bankruptcy may discharge unsecured debts, including personal loans, while Chapter 13 bankruptcy allows you to restructure your debt into a manageable repayment plan. Bankruptcy severely impacts your credit, so its important to consider that as part of your decision-making process, but if youre facing serious financial issues, taking this route can provide a fresh financial start.
Personal loan debt forgiveness isnt as straightforward as student loan forgiveness, but relief is still possible in many cases. Debt settlement, hardship programs and bankruptcy are all potential solutions to consider for those struggling to keep up with their personal loan debt obligations.
If youre feeling overwhelmed with your options or finding a starting point, the best course of action may be to speak with a debt relief expert. They can help you understand your options and guide you toward the best strategy for your situation. While getting out of personal loan debt isnt always easy, taking the right approach can put you back on the path to financial stability.
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.
Can personal loans be forgiven with debt relief?
Unlike federal student loans, which have well-defined forgiveness programs, personal loans typically do not have a formal forgiveness process. The banks, credit unions and online lenders that issue personal loans expect full repayment, with interest, in return for lending you the money you need. However, that doesnt mean relief from this type of debt is impossible to obtain.
In some cases, for example, lenders may be willing to negotiate a settlement where you pay a reduced amount to satisfy the personal loan debt. This is particularly possible if youre experiencing financial hardship and are at risk of defaulting on your loan obligations. You can attempt this type of settlement yourself, but many people opt to work with a debt relief company that specializes in negotiating with lenders to reduce their total balance, as it can increase the chances of a positive outcome.
Bankruptcy is another form of debt relief that can effectively eliminate personal loan debt. However, it is a serious decision with long-term financial consequences. Well explore these and other options in more detail below.
The Pros and Cons of Personal Loans
FAQ
Can a personal loan be forgiven?
There’s a chance a personal loan lender can forgive a loan and consider it a gift by the lender. As a gift comes with its own tax breaks through estate and gift tax, you don’t have to pay the amount that was forgiven. This won’t impact your tax return unless more than $18,000 is forgiven.
What is debt forgiveness?
Debt forgiveness is when a lender waives their right to collect a debt owed by an entity, effectively cancelling the debt. When this happens, the receiving entity records income and a corresponding drop in the liability, since the debt is no longer due right away.
Does a loan forgiveness program have eligibility requirements?
Usually, lenders that offer loan forgiveness programs have eligibility requirements. Your lender will look at your finances and the amount of debt you owe to decide if and how much of your debt to forgive. Debt forgiveness is usually available for unsecured debts like credit cards, personal loans, or student loans.
Can you get loan forgiveness on personal loans?
Getting personal loan debt forgiven isn’t easy, but it’s not impossible, especially if you’re dealing with financial hardship and have fallen behind on …Jun 3, 2025
How do I get out of a personal loan?
Negotiate with Creditors/Lenders – You may be able to negotiate a settlement or repayment plan directly with your creditors and lenders. If you choose this option, make sure to speak with a manager that has the authority to adjust repayment terms and get your agreement with them in writing.
What happens if you can’t pay a personal loan?
Can personal loans be written off?
Though personal loans are not tax-deductible, other types of loans are. Interest paid on mortgages, student loans, and business loans often can be deducted from your annual taxes, effectively reducing your taxable income for the year. You shouldn’t need a tax break to afford a personal loan.