The COVID-19 pandemic and inflation have taken a toll on people’s financial lives. While consumers charge more to live on, the relief is short-lived. Payments come within a few weeks, and growing balances are even more worrying.
A survey conducted by CreditCards.com in September 2022 found that among Americans who roll over monthly balances, 6 in 10 owed at least 12 months to creditors. This is 10 percentage points more than the previous year.
If you are in a stable financial position, you may want to help someone who is struggling with their bills.
“It could be temporary help for those who are struggling financially, or a way to make sure they have credit to shop online,” says Jennifer Strix, a personal finance expert in Brooklyn, New York. “In these uncertain financial times, it’s a very kind act to help someone.”
Here’s everything you need to know about how to donate another person’s credit card debt.
Choose the right recipient
Dana Menard, financial planner and founder of Twin Cities Wealth Strategies, says your first step is to make sure you’re donating to the right person, especially when participating on crowdfunding platforms like GoFundMe. Many people seek help with credit card debt.
“Scammers are everywhere,” Menard says. “Are they really desperate or just looking for handouts? Sometimes it’s hard to understand. It’s usually better to give it to someone you already know and trust.”
Once you’ve done your due diligence and picked the right person, calculate the amount of money you can afford to give away. This amount should not put you at a disadvantage.
“Review your finances and make sure you have a personal reserve fund,” Menard says. “Anything can happen right now and you don’t want to be in a position where you can’t make ends meet.”
Decide on a number that is discretionary and then stick to it, even if the amount seems small.
Payout options
A debt relief gift can be structured in a number of ways:
- Monthly payment: Not having to pay bills can ease a huge burden, especially if the person is having a hard time covering basic expenses. Credit card issuers typically expect minimum payments of around 2 percent of the balance. So, if you know a person owes $10,000 on the card, $200 in payment should take care of that.
- Remove debtA: If you are particularly generous and have extra funds, you can pay off the entire credit card balance of this person. This way they won’t have to think about debt again.
- Offer a loan: Credit card interest rates can be as high as 20+, making it very expensive for a cardholder to pay off debt when sending the minimum payment. Hence, another option is to give the person an interest free loan so they can pay off the card and then pay it back to you. “Of course, if you do that, you have to be sure that you get your money back,” Menard says. “Clarify the terms of repayment. For example, you can agree to no payments until they reopen, and then fixed payments for six months after that.
How to donate to a person directly
The first way to make a debt payment gift is to provide the money directly to the person, who will then turn around and apply it to the account. You can do this in cash or by check. Or you can use a payment app like Venmo or Zelle.
Whatever you use, the general process is the same:
- Find a person in the app.
- Select “Pay” and enter the amount you want to pay.
- Add a note, such as “Here’s $200 to cover your Wells Fargo card payment!”
- Set the transaction to private mode. Many payment apps are automatically set to public settings. The recipient probably doesn’t want the whole world to know they’re in debt.
How to make a donation through a loan company
Another way is to pay the creditor. Since this ensures that the money is credited to the person’s credit card account, this may be preferable.
“If it was me, I would have made the payment directly to the account,” Strix says. “It’s faster and easier. You don’t have to worry about whether the money is being used properly.”
All major credit card issuers and companies allow you to make payments to another cardholder’s account, and the process is consistent.
In general, you have two options:
Telephone
Call the company and explain to the support representative what you want to do. You will need:
- Full name
- Full account number or social security number
- Routing number of your checking or savings account (you can pay with a debit card, but this is a more complex transaction and may require transfer to another department)
Here is a list of phone numbers of several issuers:
| Issuer | Phone number |
|---|---|
| American Express | 1 (800) 528-4800 |
| Bank of America | 1 (800) 732-9194 |
| Capital One | 1 (800) 227-4825 |
| chase | 1 (800) 432-3117 |
| City | 1 (800) 950-5114 |
| Credit One | 1 (877) 825-3242 |
| discover | 1 (800) 347-2683 |
| Wells Fargo | 1 (800) 869-3557 |
You can also send a personal check to the company. To complete the process you will need:
- Correct lender address. Banks and credit card companies usually have multiple mailing addresses. The one you want will be on the person’s account statement.
- Full name of the personwritten on the check. For example, it should look like this: “Paying Jane Smith’s bill.”
- Person account number or the social security number on the check.
Whether you pay by phone or mail, if the person is set up with email or text alerts, the credit card issuer will send a notification that the payment has been received and the balance has been reduced by that amount. Otherwise (unless you tell the person about the gift), they will know when they verify their claims.
How to donate to a third party payment plan
It’s possible that the person you want to help has already taken steps to manage their debt by contacting a credit counseling agency and enrolling in a financial management program that includes payment plans and debt consolidation. If this is the case, and you know that they are struggling to pay these fees, you can pay for them.
Kathy Ross, vice president of American Consumer Credit Counseling, recommends mailing a check. What you will need:
- Name and postal address credit consulting agency.
- Client identification number and full name.
Send an email explaining that you want to make a payment on behalf of the customer and provide the person’s identification information and a check for the amount you wish to give. After that, Ross says, your donation will be complete.
Be aware of possible disadvantages
As great as a gift is to help someone with credit card debt, there are also questions to consider before taking this action:
Tax Complications and Consequences
“It’s very important to keep a record of how much you give away and to whom it goes,” Menard says.
According to the IRS, you can give up to $16,000 in 2022 without having to file a gift tax return. You do not have to pay taxes on a gift to your spouse.
As a donor, you are generally responsible for paying gift tax, although you can arrange for the person you help to pay tax. If the amount you are giving is particularly large, talk to a tax person.
relationship problems
Giving money to a friend or family member can be an emotional experience that doesn’t always end well. This person may be embarrassed or feel indebted to you, which could ruin the gift.
If a person doesn’t use the money to pay off their credit card bills and instead buys something you think is frivolous, or you expect a refund but don’t get paid, resentment will likely build up. Therefore, think through all the possible ramifications of the relationship and reconsider them if you are uncomfortable.
Credit implications
If you want to help someone get better financially, paying off debt can certainly do that. Timely payments will be noted on their credit reports and their credit utilization ratio will benefit as their debt is well below their limit. So what could be the problem?
If a person applies for additional cards and builds up additional debt or recharges their existing cards, they may be back where they started. And you may not have the resources (or desire) to help again.
Potential impact on your own finances
It’s also important to consider how taking on someone else’s debt can affect your financial situation. What happens if you lose your job or get sick? What happens if you become a parent? Although you may feel good today, this debt of the debtor can become a burden if your financial situation changes.
bottom line
When your finances are in a healthy state, helping someone who is desperately trying to pay their bills and get out of debt can be one of the most valuable things you can do.
“Whenever times are tough and the economy comes to a halt, it shines a light on the haves and the have-nots,” Menard says. “If we can all do just one thing to help someone in need, we will get out of this pandemic faster – and better than before.”
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.