Debt Options/Settlement/HELP
Date: Wed, 08/24/2011 - 11:42
I unfortunately fell on some hard times a few years ago and had to rely on credit cards for awhile to get me by. Unfortunately, none are in good standing anymore and I'm at my wits end with collectors calling. The plus side, I am finally on my feet again and really want to get things paid off and start the long road to credit repair. I have pulled my credit report and here is my debt breakdown.
Discover: Past due amount: $4,469 Balance: $5,295 (Although this one just says charged off, not transferred or sold)
Portfolio (Bought from Chase): $7,291
Arrow (Bought from CareCredit): $1,016
Capital One (It just turned up as a zero balance, so I'm sure they have sold to a third party as well) $1,133
Total of $14,735 none of which I am paying on as I don't really know what my first steps should be to get it resolved.
I am now making $50,000 a year plus bonuses. After paying living expenses, car etc I can afford anywhere from $200-$500/month depending on bonuses. So I'd rather only commit to $200 but pay extra with whatever bonus I may get each month. I would in the end like to have improved my credit score (sadly I went from 720 three years ago to 567 today) and to have this paid off as quickly as possible.
I guess I'm asking for suggestions on how to go about this. I've heard horror stories about collections agencies. I'm also curious as to the effect of settling debt on my credit. Not sure my credit can get much worse, but after paying it all off, I want my credit score to be better, not worse than it already is.
Thoughts? Suggestions? Any help is greatly appreciated! Thanks for taking the time to read :D
Your credit is already screwed so, I wouldn't worry about that.
Your credit is already screwed so, I wouldn't worry about that.
I think you should settle. Since you don't have a lot to work with, you need to immediately start setting aside as much per month as you can. This will be your settlment fund.
You should probably start with your smallest balance owed. Send an offer letter or call them up and tell them you'd like to settle your account in full by paying ___. A good starting offer is around 25%. They may counter offer and then the negotiations begin.
Make sure you get your settlment offer in writing before paying anything. You should be able to whittle away at these pretty quickly.
So if I settle, what does that mean for my tax situation? Would
So if I settle, what does that mean for my tax situation? Would it be like income if I settle for less than I owe?
IRS regards the amount saved through debt settlement as taxable
IRS regards the amount saved through debt settlement as taxable income. Yo may have to pay tax on the saved amount.
Taxes
You may qualify for the IRS Insolvency rule, whereby if your liabilities exceed your assets during the tax year in which you settle your debts, you will likely not face a tax liability. You'll need to access IRS Form 982 to determine if this will be the case in your situation. I attempted to attach the link to the IRS website, but it's currently not working - sorry!
As far as settling your debts, you'll want to make sure that each of your accounts is still with the agency listed on your credit report, and starting with the smallest account, you can begin your settlement negotiations. If you'd like to get started sooner rather than later, you can offer a settlement on your lowest balance account via installments. If you intend to offer your settlements via written form, I suggest sending them via fax (after confirming that you have the correct fax number). Collectors prefer verbal communications, but oftentimes a settlement offer gets their attention (or so it seems to be when our office faxes settlement proposals).
Also, I suggest raising your savings goals from $200.00 per month to nearer the $500.00 per month figure; this will get your debts settled much quicker.
Best of luck to you!
