How to pay someone else’s credit card debt

The COVID-19 pandemic and inflation have wreaked havoc on peoples’ financial lives. Although consumers are charging more to get by, the relief is short. Payments come due in a matter of weeks and escalating balances cause even greater anxiety.

A September 2022 poll by CreditCards.com found that among Americans who carry balances month to month, 6 in 10 have owed creditors for at least 12 months. That’s a 10-percentage-point increase over the previous year.

If you’re in a stable financial position, you may find yourself wanting to help someone who is struggling with their bills.

“This can be a temporary help for someone that is experiencing financial hardship or a way to ensure that they have credit available to make purchases online,” says Jennifer Streaks, a personal finance expert from Brooklyn, New York. “During these uncertain financial times, this is a very kind thing to do to help someone.”

Here’s everything you need to know about how to donate to another person’s credit card debt.

Choose the right recipient

Dana Menard, a financial planner and founder of Twin Cities Wealth Strategies, says your first step is to be sure you’re giving to the right person — especially when participating in crowdfunding platforms like GoFundMe. Plenty of people make pleas for assistance with their credit card debt.

“Scammers are out there,” says Menard. “Are they really in dire straits, or just looking for a handout? That’s hard to know sometimes. Giving to someone you already know and trust is usually a better idea.”

Once you’ve done your due diligence and decided on the right person, figure out the amount of money you can afford to give. That sum must not put you at a disadvantage.

“Review your own finances and make sure you have a personal emergency fund,” says Menard. “Anything can happen right now, and you don’t want to be in a position where you can’t make ends meet.”

Determine a figure that’s discretionary, then stick with it even if the amount seems small.

Payoff options

A debt reduction gift can be structured in a few ways:

• Monthly payment: Not having to pay a bill can alleviate a huge burden, especially if the person is having a hard time covering basic expenses. Credit card issuers usually expect minimum payments of around 2 percent of the balance. So, if you know the person owes $10,000 on a card, $200 toward the payment should take care of it.
• Delete the debt: If you’re particularly generous and have the extra funds to spare, you can pay off the person’s entire credit card balance. That way they won’t have to think about the debt again.
• Offer a loan: Credit card interest rates can be in the upper 20s, making it very expensive for the cardholder to get out of debt when just sending the minimum payment. Consequently, another option is to give the person an interest-free loan so they can pay the card off and then repay you. “Of course, if you do this, you have to trust that they will pay you back,” says Menard. “Spell out the repayment terms. For example, you may agree to no payments until they resume working and then fixed payments for six months after that.

How to donate to the 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 so in the form of cash or a check. Or you can use a payment app, like Venmo or Zelle.

Whichever you use, the general process is the same:

• Locate the person on the app.
• Select “pay to” and enter the amount you want to give.
• Add a note, such as, “Here’s $200 to cover your Wells Fargo card payment!”
• Set the transaction to private mode. Many payment apps automatically defer to a public setting. The recipient probably won’t want the whole world to know they’re in debt.

How to donate via the credit card company

Another way is to pay the creditor. Because it will guarantee that the money is applied to the person’s credit card account, it may be preferable.

“If it were me, I would make a payment directly to the account,” says Streaks. “It’s quicker and easier. You don’t have to worry if the money is being used the right way.”

All of the major credit card issuers and companies allow you to make a payment to a different cardholder’s account, and the process is consistent.

In general, you have two options:

Phone

Call the company and explain to the customer service representative what you want to do. You will need the person’s:

• Full name
• Complete account number or Social Security number
• Your checking or savings account routing number (you may be able to pay with a debit card, but it’s a more complicated transaction that could require being transferred to a different department)

Here’s a list of phone numbers for a few issuers:

Mail

You can also send a personal check to the company. To complete the process, you’ll need:

• The creditor’s correct address. Banks and credit card companies usually have multiple mailing addresses. The one you want will be on the person’s account statement.
• The person’s full name, written on the check. For example, it should read, “Payment for Jane Smith’s account.”
• The person’s account number or Social Security number, written 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 reduced by that amount. Otherwise (unless you tell the person about the gift), they will find out when they check their statements.

How to donate to a third-party payment plan

It’s possible that the person you want to help has already taken steps to deal with their debt by going to a credit counseling agency and enrolling in financial management which includes payment plans and debt consolidation. If so, and you know they are struggling to meet those payments, you can make a payment for them.

Katie Ross, vice president for American Consumer Credit Counseling, says to mail a check. What you would need is:

• The name and mailing address of the credit counseling agency.
• The client’s ID number and full name.

Send a letter with an explanation that you want to make a payment on behalf of the client and provide the person’s identification information and a check in the amount you want to give. After that, Ross says, your donation will be complete.

Be aware of potential downsides

As great a gift helping someone with their credit card debt is, there are also issues to consider before taking that action:

Tax complications and consequences

“It will be very important to keep a record of how much you give and who it’s going to,” says Menard.

In 2022, you can give up to $16,000 without the need to file a gift tax return, according to the IRS. You are not required to pay taxes on a gift to your spouse.

As the donor, you are typically responsible for paying any gift tax due, though you may be able to make an arrangement to have the person you’re helping out pay the tax. If the amount you give is an especially large figure, communicate with the person about tax issues.

Relationship problems

Giving money to a friend or family member can be an emotional event that doesn’t always end well. That person may be embarrassed or feel obligated to you — which can put a damper on the gift.

If the person doesn’t use the money to repay their credit cards bills, but buys something you consider frivolous instead, or you expect to be repaid but aren’t, resentment will likely build. Therefore, think through all the possible relationship ramifications and reconsider if you feel uncomfortable.

Credit fallout

If you want to help someone get to a better financial place, paying down their debt can certainly do that. On-time payments will be noted on their credit reports and their credit utilization ratio will benefit by owing considerably less than their limit. So, what could be the problem?

If the person applies for more cards and accumulates additional debt or charges up their existing cards again, they could end up right back where they started. And you may not have the resources (or desire) to help out again.

Potential impact on your own finances

It’s also important to consider how taking on someone else’s debt could affect your financial situation. What happens if you lose your job or get sick? What happens if you become a parent? While it may feel fine today, that debtor’s debt may become a burden if your financial situation changes.

Bottom line

When your finances are in a healthy state, assisting someone who is trying desperately to pay their bills and get out of debt can be one of the most valuable actions you can take.

“Whenever times get tough and the economy screeches to a halt, it shines a light on the haves and have-nots,” says Menard. “If we can all do a little something to help a person in need, we’ll come out of this pandemic faster — and better than before.”