"Do you have more than $10,000 in credit card debt"

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Mike35673

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I swear on a typical 4 hour drive, I will hear 5 of these commercials on the radio, all from different companies. Has anyone ever tried these things?
I'm assuming it's a scam......the commercials make me furious with their veiled lies about it being a "government buyout" and "the credit card companies are being ordered to clean up their books"

I would think if it is THIS easy for a company to just spring up like a weed to help these poor saps, they could probably do it alone. Anyone have insight?
 
These are debt negotiators/consolidators/settlers. Basically, what you do is you stop paying your credit cards (if you haven't already, for whatever reasons), you send them a lump sum (if a final number was settled upon, or monthly payments, it varies) and they may or may not pay them. They call the cards and "settle" your account for a percentage of what you owe. This will damage your credit, of course. If you are making this call, it's probably already screwed up anyway. Assuming everything is done "right" then your card companies list your account as "paid as settled" or some other term. Which may or may not hurt you in the future for buying a house or whatever

I would definitely suggest visiting http://www.daveramsey.com/ before you even consider debt settlement.

<edit>Yes, you can do the same thing that they are doing, with the same ramifications</edit>
 
Basically, they tell you to stop paying your credit card bills and to start paying them. They will then proceed to not pay your credit card bills for a period of at least a year, during which time you will begin to get calls from collectors and your credit will be shot, but the credit card companies may now be open to negotiation.

After this, the idea is that they begin to negotiate a settlement on he debt for you. This is the part which is open to debate, b/c they may fail and many of these companies just keep the money that you have paid them and never do a thing. They're very good at collecting, but not so good on the follow-up.

Bottom line is "yes", you can do it yourself, but you really don't want to. The point that you have to take it to is way beyond the stress level of having a difficult amount of debt. Tear up those credit cards and live like a pauper for a couple of years. The freedom is worth the cost.
 
Yes, some are horrible for your credit. If you do some research, you can find a few that HELP your credit.

I got in a bit over my head when I lost my job. I did some research and came up with a company that DOESN'T negotiate your debt, but they do lower interest rates. The trick is never missing a payment. If the consolidator misses one, pay it and call the consolidator to fix the problem. The company I went through didn't save me any money monthly that was noticeable, but they prettey much froze my interest and I had it all paid off (12k) in 2 years. My credit was crap when I started, but it slowly went up until I paid the last payment, now it is great. The good thing was the day I paid it off, I suddenly had $500 a month extra that I used to pay off the wifes car. Now we are putting approxamately $850 a month in savings.

Moral of the story, do research if you need help paying off your credit cards. Look for reviews of the companies etc. If you realy need help, they can change your life for better or worse, it is up to you. I will NEVER have credit debt again. I now have one credit card with a $2500 line for emergencies only.
 
I swear on a typical 4 hour drive, I will hear 5 of these commercials on the radio, all from different companies. Has anyone ever tried these things?
I'm assuming it's a scam......the commercials make me furious with their veiled lies about it being a "government buyout" and "the credit card companies are being ordered to clean up their books"

I would think if it is THIS easy for a company to just spring up like a weed to help these poor saps, they could probably do it alone. Anyone have insight?

Scam city! I friend of mine went to one of these to get some help getting out of debt & they kept his 1st payment & did NOTHING to help him, not so much as a phone call to his creditors. So he climbed out of debt all on his own; a very long & difficult process, but he did it. These scam artists should have all their assets siezed & be pilloried in the town square. Regards, GF.
 
Keep in mind that not only do these debt settlement companies wreck your credit rating, the amount that you don't pay to your creditors because of the settlement is taxable as income. (I found that out when I settled my late wife's estate. Bummer, that.)

The service WIP talks about is a debt management service. I've used one myself, to the tune of almost $50k. They do negotiate with your creditors but what they work out is a repayment plan that you can live with. They help you set up a budget to cover your living expenses (and they don't squeeze you for every penny; they take your word for how much you need for gas, groceries, and everything else) and see how much you have left over every month. Then they contact your creditors and ask if they'll waive or reduce their interest charges and stop making collection calls in exchange for you 1) paying an agreed amount every month and 2) not charging anything else until everything is paid.

Most creditors prefer this because they know they'll get back the money they loaned you. With a debt settlement they'll lose part of that. Also, when you complete the program your credit rating is a lot better off - all it shows is late payments instead of settled debts.

Dave
 
the amount that you don't pay to your creditors because of the settlement is taxable as income. (I found that out when I settled my late wife's estate. Bummer, that.)

I was looking for this and if it wasn't there I was going to post it myself. If you settle for less than the amount you owe, you WILL get a 1099 for the difference and you will owe the IRS roughly 30%-40% the amount on the 1099. And the IRS can do more damage to your finances than any mere lender can do. If anyone here is negotiating some sort of settlement, consider if you're better off not paying the debt or settling for a smaller amount and then owing the IRS about 1/3 of the difference.
 
Hal- why would you owe the IRS "30-40%"? If it is taxed to you as income it should be taxed at whatever your effective rate is.
 
Hal- why would you owe the IRS "30-40%"? If it is taxed to you as income it should be taxed at whatever your effective rate is.

I'm not 100% on this, but I believe you get a 1099 when you settle any debt and in doing so save over $600. The difference between your amount of debt and the amount of your settlement is then treated as a capital gain that is taxed at a higher marginal rate.

Again, not 100% on that, but I had a buddy go through that a while back and I think that's how it went down.
 
Hal- why would you owe the IRS "30-40%"? If it is taxed to you as income it should be taxed at whatever your effective rate is.

It depends on your tax bracket, but since this is added on top of your annual income the impact on the tax you owe is as if it was all taxed at your bracket's rate. Plus there was nothing withheld from it, so you have to pony up the whole tax amount.

The 25% tax bracket starts at $33,950, so for most people who are likely to be in credit trouble (i.e. people who had enough income to get the credit cards approved in the first place) saying 30% might be an exaggeration, but not by much.

Dave
 
Cheezy - agreed

Dave - true if you are a single person, and that $33,950 is taxable income, not gross just to clarify. From box 7 of your 1040 to box 43 your income can decrease dramatically due to above the line deductions, itemized deductions, personal exemptions, etc.

Also, if you are bankrupt or insolvent, or it is due to mortgage indebtedness before 2013, it will not be considered income.
In general please consult your own tax advisor to see how it affects your situation!
 
I'm not sure if canceled debt is taxed as capital gains. Here's what the IRS says about it:

Canceled Debts

Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold.

If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer).

If the debt is a business debt, you may be able to elect to recognize the canceled debt in income over a 5 tax year period. For information on this election, see Revenue Procedure 2009-37 available at http://www.irs.gov/irb/2009-36_IRB/ar07.html.
(From this web site.)

My guess is the forgiven debt is taxed as regular income, but I'm not an accountant so what I think doesn't count.

Dave
 
I did a lump sum payment to a cell phone company a year ago, and I saved about $800 paying it off at once, and I never got a 1099 for it. I also make, uh, over $33,950 a year ;) The bill itself was $2700.
 
if your credit is already shot, and you are in over your head, why wouldn't you just file bankruptcy? i'd rather pay a lawyer 2500 bucks and let the courts handle it, than **** around with creditors, or third party scammers.
 
I just piled all of my debt together, figured out how quickly I wanted to pay it off and worked out my gross monthly payment. I'd pay the interest earned on every account and take what ever was left of the gross payment and apply it to the account with the highest interest rate. Not too difficult. First things first though, cut up the damn cards.

I can't stand terrestrial radio any more. When I got my recent car I was listening to it till I moved my head unit. At least for a few days. That barrage of advertisement and crap you have to listen to in order to hear 10 minutes worth of programming is nuts. "7 minutes of adds for 3 minutes of music", forget that noise. Though I would always laugh at the credit consolidator when it was immediately followed by the "Call for quick cash! quick radio cash!" using the 'Head On' philosophy of advertisement. Then the Life alert thingy, "Hello mam, you're son Tommy fell and hurt his elbow, his brother said it does not look broken, would you like me to send an ambulance?" WTF?! Tommy is too stupid to grab the phone and call the same cell phone number you used to contact me about this? He's lucky he wasn't weeded out by natural selection!
 
Hal- why would you owe the IRS "30-40%"? If it is taxed to you as income it should be taxed at whatever your effective rate is.

You're right about that. I was thinking 1099-C was one of the 1099s that required you to pay the additional withholding taxes. I looked into it and am wrong about that. It would be the effective rate.
 
Whats said about these commercials is that soo many people believe that it will fix everything! They also don't tell you how much they charge for the service either. People just need to call the credit card company themselves and see if a deal can be worked out with respect to the interest rate, payment plan or payoff.
 
"Effective" tax rates are not levied on income, actual tax rates are. Effective tax rates are what you get if you work backward from tax paid and income earned net of exclusions, credits etc.
 
if your credit is already shot, and you are in over your head, why wouldn't you just file bankruptcy? i'd rather pay a lawyer 2500 bucks and let the courts handle it, than **** around with creditors, or third party scammers.

Bankruptcy has a lot more of legal and financial ramifications than that: good luck finding/keeping your job afterward if you lose your car (and you probably will) and no landlord wants to deal with you because of your poor credit rating. Bankrptucy follows you around for a very, very long time. Some debts also aren't erased, such as federal students loans (wich many, many people are now burdened with due to college being the new high school). You can't also exactly decide "f&?% it, I'm filing", you have to meet the criterias.

If you are a young guy who made a lot of mistakes, maybe. But for a lot of people, bankruptcy simply is not a viable option, unless they plan to make a living out of filing every 15 years. The thing is, the people who rack up 12k of credit card debt are not exactly the people who are most business savy and willing/able negociate with creditors themselves to psuh every little edge so they can to save money. So they turn to the guys who make commercials daily who may or may not be legit.

Same thing for the ads about computers for people with shot credit. Wow, I'll get some crappy osbolete thing for 60 50$ monthly payments ! Sign me up now !
 
When I was in college I got in over my head on credit cards. I went through a debt management service that negotiated payments with my creditors (I had four cards) to stop additional interest, stop any over-limit fees, and work out the payments so I could afford the payments. I think stopping the additional accumulation was a real advantage but I was paying a massive chunk of my payments to the service itself even though it did very little work.

Yes, you can do most of the negotiating yourself but I suspect especially when it comes to some of the less polite collectors they are less likely to negotiate reasonably with the debtor than a third party negotiating on your behalf. I think for people who want a third party to handle it, you might as well get a lawyer who will charge a one time fee or a marginal amount to split up and send off your payments.

The whole credit card industry works off of manipulating people and profiting from their lack of knowledge about the credit industry. That goes from the credit card companies to the banks offering cards to the debt collectors and debt management services and consolidation services.

Bankruptcy is not a magic solution -- it is increasingly more difficult for people (but not businesses) to discharge debts, especially certain kinds of debts. With the all-importance of your credit score and credit report a bankruptcy has a lot more of an impact on your life than just your ability to get an AMEX card. Credit reports are ran for jobs, insurance, mortgages, rent, (some) student loans, cell phone contracts, utilities, etc. In other words, your ability to make money and spend it on life necessities. You may get away with discharging some debts through bankruptcy but you'll pay it back in risk premiums for a long time.
 
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