OT - financial planning/advisors out there?

[Vainglory, Esq.]

Yo ya'll..
Wife just talked to a couple of the credit card companies we have debt with. In chatting with them and agreeing on a lowered "settled" amount, the agent mentioned something to her that she wasn't sure about and not comfortable with;

1. They mentioned the difference in outstanding principle and the settled amount it taxable income

and

2. Agreeing with the amount, once reported to the credit bureau, i.e. Equifax, etc., it will decrease your credit score instead of, in my understanding, increasing your credit score because of overall lowered debt.

Any of this make sense or is it a scare-tactic?

First of all, I'm not your attorney, and I'm not qualified to give legal advice in Texas.

That being said, as a matter of tax law, point #1 is correct.  Forgiven debt is treated as taxable income by the IRS.  However (and this is a big one), if you are "insolvent," the forgiven debt may not give rise to a taxable event.

As to point #2, the credit ratings are sorcery, and since they're proprietary, nobody really knows how they'd work.  As far as debt settlement for less than the principal amount goes, you should expect a hit to your credit since it is a red flag that says you're currently unable to pay all of your debt.  The lower overall debt should help, but perhaps not by as much as the settlement hurt.  Your big question - is my credit rating right now worth laboring under this debt for the forseeable future?  Are you buying a house right now?  Are you taking on more debt right now?  What good is a high credit score right now if it means you're stuck eating ramen for every meal for the next 10 years?  Credit can be rebuilt.

[89MOPAR]

  Agree with Vainglory on both points.  the amount forgiven is taxable.  Ok that's bad, but better to owe 28% of  $XYZ , than the full $XYZ amount.

  And the Credit score - you have a new house, you've basically gone all cash.  CAsh doesn't need a credit score, its cash.  As some of the Ramsey folks say " I'm going for a credit score of Zero ".

[nh_mopar_fan]

Have auto insurance? Guess what many companies are using in the equation to determine what your premium is?

Credit rating.

Ramsey is a clown.

anyone who takes the position that credit is bad under any circumstance is an idiot. If you can't handle credit, learn how to handle credit. Don't just give up and take on a "credit is evil" attitude.

The snowball method is an ok idea but he wants you to pay off the lowest balance first no matter what the interest rate is. So, he wants you to pay off the $5000 at 0% before you pay off the $7000 at 10%. How in the world does that make financial sense?  

Oh, he's all cash. Uh, until you have to buy his program. Then credit cards are just fine as a form of payment.  

[bull]

Have auto insurance? Guess what many companies are using in the equation to determine what your premium is?

Credit rating.

Ramsey is a clown.

anyone who takes the position that credit is bad under any circumstance is an idiot. If you can't handle credit, learn how to handle credit. Don't just give up and take on a "credit is evil" attitude.

The snowball method is an ok idea but he wants you to pay off the lowest balance first no matter what the interest rate is. So, he wants you to pay off the $5000 at 0% before you pay off the $7000 at 10%. How in the world does that make financial sense?  

Oh, he's all cash. Uh, until you have to buy his program. Then credit cards are just fine as a form of payment.  

Ramsey might be considered a clown unless you're in debt up to your eyeballs. I'm not sure if that's exactly where he's at but it sounds pretty bad so I'd say Ramsey's approach could help in this case. The paying off the smallest debt first thing is to help you progress quickly, eliminate the first debt and then apply that payment to the next debt and so on. Eliminating your smallest debt helps your morale and motivates you to keep moving forward.

[chargergirl]

Yo ya'll..
Wife just talked to a couple of the credit card companies we have debt with. In chatting with them and agreeing on a lowered "settled" amount, the agent mentioned something to her that she wasn't sure about and not comfortable with;

1. They mentioned the difference in outstanding principle and the settled amount it taxable income

and

2. Agreeing with the amount, once reported to the credit bureau, i.e. Equifax, etc., it will decrease your credit score instead of, in my understanding, increasing your credit score because of overall lowered debt.

Any of this make sense or is it a scare-tactic?

It isn't enough to kill ya. The creditors will look at it as you tried. I have even been told not to pay those off cause it will drop your credit rating.Sometimes it is better just to let those ride is what I was told. Unless this is so large that bankruptcy would be better take the bankruptcy. Credit is back in three years as opposed to 5-10 years. I know you are trying to do the right thing. Sometimes it is best to take the fast track.

[no318]

Have auto insurance? Guess what many companies are using in the equation to determine what your premium is?

Credit rating.

Ramsey is a clown.

anyone who takes the position that credit is bad under any circumstance is an idiot. If you can't handle credit, learn how to handle credit. Don't just give up and take on a "credit is evil" attitude.

The snowball method is an ok idea but he wants you to pay off the lowest balance first no matter what the interest rate is. So, he wants you to pay off the $5000 at 0% before you pay off the $7000 at 10%. How in the world does that make financial sense?  

Oh, he's all cash. Uh, until you have to buy his program. Then credit cards are just fine as a form of payment.  

Ramsey might be considered a clown unless you're in debt up to your eyeballs. I'm not sure if that's exactly where he's at but it sounds pretty bad so I'd say Ramsey's approach could help in this case. The paying off the smallest debt first thing is to help you progress quickly, eliminate the first debt and then apply that payment to the next debt and so on. Eliminating your smallest debt helps your morale and motivates you to keep moving forward.

I agree, Bull.

AND Ramsey does NOT accept credit card purchases, only debit cards.  Nothing wrong with living debt free and paying yourself payments vs. paying interest to someone else. 

[nh_mopar_fan]

Nothing wrong with paying that credit card off every month and not charging it if you don't have the money to pay it.

I admit I'm not sure but, can you actually rent a car without a credit card?

Haven't paid a dime in credit card interest in well over 10 years now.

Once again, anyone who takes the position that credit is bad under any circumstance is an idiot. If you can't handle credit, learn how to handle credit. Don't just give up and take on a "credit is evil" attitude.