which way should i go

A credit counseling service i.e. debt settlement service will not damage your credit anymore than you already have. Basically the way they work is they let your payments to your creditors become really late and then the start offering settlement amounts. This is exactly what you did when you settled with the first company for $1000. Every time you settle a debt you are slowly rebuilding your credit. I would try to settle for full deletion of each bad entry on your credit report as part of the settlement offer and also try to settle for 50% of the amount borrowed after subtracting out all late fees, penalties and interest. Get all offers in writing before paying and it should say settled in full.

debt consolidation is a double edge sword in my opinion. You can not borrow your way out of debt. If your credit is bad and you have no assets it is difficult to get a good loan to consolidate the debt. The consolidation companies generally do not settle debts for you either. They take a credit report and go down the list paying the amount shown as owed on the report. This means you pay all the penalties, interest and fees and you do not get a chance to make a settlement offer. This is fine if your payments are not late yet but if you have debts that have been sitting for a year unpaid then they tag you with penalties and fees at the full amount.

The advantages to consolidation are it gives you one payment per month that is generally lower than a bunch of minimums added together. The interest rate is usually better. It improves your credit score because it lowers the number of unsecured lines of credit you have open.

Based on your brief description on average you owe 10 cards $1100 each for a total of $11,000 and they are all at least 1 year late on payment. It is very unlikely that any of them will sue. If I were in your shoes I would probably continue to save money and every time I had $500 I would make a settlement offer to one of the cards. Go down the list of cards until one of them agrees to accept the $500 as settled in full. Tell each one of them you have 10 companies you owe and which ever accepts first is the one that gets paid. Do not spend more than 5 minutes on the phone discussing the issue. Either they accept or they do not. If the collector starts being an idiot hang up and try the next company. If none of them agree to the amount you have saved then wait a week and come back with a new offer of $525 or whatever extra you added to the $500. Do not pay over the phone. Do not pay without getting the offer in writing. Do not send post dated checks. Do not give them direct access to your checking account. Do not agree to a payment plan.

I love that idea dollarsandsince. The consolidation companies can end up costing you more money in the long-run. I used one once for about 6 months and they put me more in the hole than if I would have just tried to negotiate settlements. I think that creditors look favorably upon you trying to pay off the debts, even if it is through settlements.

Thanks for the replies,
of the 10 cards one is currently on monthly payments of $395, (total balance of this card is now $5600). the rest are ranged at around $600-$1000.
so when i call to make a settlement, i should get it in writing before making payment even if they insist on paying by phone or setting a future payment from my bank? how well do they respond to this? also how easy is it to get them to remove it from my credit report? are they concerned with just getting the money so they will agree more easily?
i've not much experience with collectors as i have been avoiding them in the past, but what i do know is the "can and can't do's" of any collector.
i will go ahead and contact these collectors and will post the results.
one more thing when do companies generally like to sue people? is it when a debt is above a certain amount or time the debt has gone unpaid? just wondering.
thanks.

I agree with dollar.
I do not think that debt consolidation is a bad idea, espeically when you are already in a jam.
I was going to suggest trying to settle out with the companies. Alot of companies will accept alot less then the owed amount in order to clear the debt. I recommended my sister in law to do that, and she found it to be very helpful and was able to clear alot of her bills.

My question about debt settlement is that I know you report the settlement amounts to the IRS as "other income" (i think)...but do you report it AFTER you finished the settlement payments or BEFORE...

After.

When settling, the debt is not forgiven until the terms of the settlement agreement are met.

And you're right, it is "other income". Check out IRS rules on insolvency as well.

You need to agree on the settlement amount with each company. For example, if you agree to settle a $1000 debt for $500 then you need that offer in writing and signed as settled in full upon payment of the $500. Always get it in writing first or they will screw you and say they did not agree to anything and then you just paid them $500 for nothing. They will then continue the collection process and make you cough up more to settle. After you get the signed offer then send them a certified bank check for the amount using certified mail return receipt requested with a copy of their signed agreement. Never give them access to your checking account. They will withdraw more than you agree to. The CA should start reporting the debt as settled in full for less than owed within a month or so after you settle to each credit reporting agency. If they do not then once you have the signed agreement and a copy of the cashed check you can then dispute the line item with each credit agency and send these copies as proof. This should either remove them from your report or make them show as I just described. It????????s more of a gray mark. It does not affect your report as badly as an unpaid debt.

The circumstances causing a collector to file suit varies from company to company. In general it is based on the amount owed, how late payment is and their assessment of your financial status. I think it is pretty unlikely that you will be sued by any of them that you owe $1000 or less to and the time delinquent will have no factor. It is more likely that the $5,000 creditor would sue you but not a given.

In response to the tax question you would be responsible for income tax on the difference between what is owed and the amount you settled at if the company files form 1099-c with the IRS. This can take up to 3 years for a company to do if they ever do it at all. I have settled debts in the past where the company never filed form 1099c so I never paid tax on the difference.

The above was mine.

It's only considered income if you save 600 dollars or more. A first time settlement if the company doesn't remove the mark lowers your score by up to 150 points. After the first hit any remaining settlements are significantly lower in dductions to your credit score.


You could also send a restricted letter saying that upon cashing the payment the dent will be considered settled in full. My company has sent back and processed many settlements that way.

I think that they would send you a income sheet for the end of the year and tax purposes too.