Millions of consumers are defaulting on their credit cards. We aren’t talking about hundreds of dollars. We are talking about thousands and thousands of dollars of unpaid balances. Because so many credit card holders are defaulting, banks are being hit…hard.

Federal regulators have now entered the picture. They are being asked by financial and consumer advocated to let lenders significantly reduce the amount of debt owed by some consumers. Consumers that are in heavy debt are being considered to begin a special program. This program would help reduce their credit card debt by up to 40 percent.

The credit card debt forgiveness program is being pushed by the Financial Services Roundtable and the Consumer Federation of America. Both of these two organizations have pointed out how desperately urgent the situation is. America has hit an all-time high in credit card defaults (both the number of defaults and the monetary amount of these defaults). Banks and other financial institutions have been left scrambling.

So, what exactly is the proposition? How will this plan work? Consumers who aren’t able to qualify for current repayment plans and who are carrying extreme levels of debt. In a recent statement, the two groups said, “This proposal would make it financially feasible for credit card lenders to provide immediate financial assistant to American consumers who are carrying record levels of debt.”

Almost every major credit card institution has already agreed to begin a temporary program. This program would forgive up to 40 percent of the person’s debt. The remaining balance can be paid over time. Each institution would evaluate each case separately and the amount to be forgiven would be forgiven on a case-by-case basis. Those who qualify to have 40 percent of their debt forgiven would reach an almost personal bankruptcy status.

The plan is hoping to create a balance between the creditor and the consumer. “We are asking to provide guidance to lenders that will in turn offer relief and stability to consumers.” Is this the best thing for Americans in such a heavy recession? Should there be more counseling programs in place to prevent people from living so far out of their means? The Federal Reserve estimates that Americans are now enslaved to approximately $900 billion in credit card debt.

What is your opinion? What should be done to combat such rising credit card debt?