CC offering to settle with me - do I take it?

[tiger70810]

Until a few months ago, I had decent credit. I had a lot of debt, but I was making on-time payments. Then, my husband wound up hospitalized and was out of work for almost a month....and of course, we had minimal savings that we quickly blew through just trying to keep the roof over our head and our lights on.

So now, I'm 2-3 months behind on most of my credit cards. One of the companies (BoA) is offering to settle with me if I pay a certain amount, but I'm worried what that will do to my credit long term. Of course, my credit's already in the hole and I just can't keep up with my payments, so I don't know what other choices I have other than to accept the settlement and be done with it.

Thoughts? Will this hurt my credit more, or do I need to look at other options? I honestly don't know what my other options are - we already have a title loan out on our car, we're both working full time, and I've already cut expenses to the bone (couponing, cutting unnecessary expenses, etc), and my bank won't approve me for a debt consolidation loan. Thanks in advance!

[maat55]

How you manage your credit affects your score. There are different levels of bad when you do not pay properly.

Settling is better than not paying. I personally, would not base my management of debt on how it affects my score. IMO, you should pay your debts as best you can, then work your way away from debt.Your scores will improve when your financial picture improves.

How do you intend to settle? Are you paying a specific on going amount or a one time amount? I would first attempt to increase my income and catch up, second, I would pay debts in order of importance to my life(house, utilities, car) before settling with a credit card.

[dczech09]

If the credit card company is willing to settle with you, then there is little doubt that your credit is already trash. They are willing to settle for a reason- the reason is that they believe they may not be able to get the full amount owed out of you.

Think of it from the bank's shoes: would you want to settle for less than you could get? Heck no! You would want to get to as much as you could. The bank is offering a settlement because they do not believe they will get the full balance from you.

So, since your credit is probably low at this point, how this settlement affects it is pretty mute. But just for the giggles:
A settled account is better than not paying.
A paid off account is better than a settled account.
Not paying is worse all around.

I agree with maat that you should not be so concerned with how this will affect your credit.

How much do you owe? How much is the settle amount? Is it possible for you to get your income up and pay this off in full in a reasonable amount of time? If you settle, how will you get the funds to do that? These are all questions worth asking.

Also, if you do settle, you must be aware that the amount that is forgiven by the credit card company will be filed under a 1099 (if it exceeds $600). This means that you will pay taxes on the forgiven amount as if it were income. This is not a big deal or anything, but I thought I would let you know so there are no surprises!

[breathemusic]

I have no idea if the CC company would even entertain the idea, but if they're so concerned with getting their money, but you would like to attempt to pay back the debt in an effort to not have a settlement on your credit, it might be worth calling to see if they would consider lowering your interest rate (and maybe even waiving a few late fees) rather than settling. If they did that, they would get the full amount of the initial purchases, plus they'd still make money via some amount of interest. But it would make your payments smaller, and therefore they might be more manageable.

Of course, I say this without knowing just how high your payments are, and how far off the mark you are in being able to make them. If having the interest rate reduced won't bring the payments down enough to make you able to afford them, it's sort of a moot point. And even if it would help, the CC company may not go for it. But it seems like it couldn't hurt to ask?

[Stump1000]

List out your all your bills and your total income after taxes. There are some very smart money managers around here that can give you some great advice.

Everyone's situation is different so without all the information it's hard to give the right advice.

[bjl584]

Until a few months ago, I had decent credit. I had a lot of debt, but I was making on-time payments. Then, my husband wound up hospitalized and was out of work for almost a month....and of course, we had minimal savings that we quickly blew through just trying to keep the roof over our head and our lights on.

So now, I'm 2-3 months behind on most of my credit cards. One of the companies (BoA) is offering to settle with me if I pay a certain amount, but I'm worried what that will do to my credit long term. Of course, my credit's already in the hole and I just can't keep up with my payments, so I don't know what other choices I have other than to accept the settlement and be done with it.

Thoughts? Will this hurt my credit more, or do I need to look at other options? I honestly don't know what my other options are - we already have a title loan out on our car, we're both working full time, and I've already cut expenses to the bone (couponing, cutting unnecessary expenses, etc), and my bank won't approve me for a debt consolidation loan. Thanks in advance!

I'm suprised that a CC company is willing to settle after only 2 or 3 months of delinquent payments.

That being said, I wouldn't base a plan of action on my credit score alone.

As Matt said, taking a settlement is better than not paying at all. Your score will improve over time as your finances improve.

But, it sounds like there is a larger problem going on here. You are living above your means. Without drastically changing your lifestyle this problem isn't going to go away. You should list out all of your income and montly expenses so we can have a better look at your situation.

[snafu]

Before taking any action, get their offer in writing. Too often a lower level staff member makes an offer rescinded later by a supervisor. If your husband has recovered and is back at work it's important to make a plan and discuss your proposed payment schedule with remaining creditors.

As has been suggested, by listing your income, creditors, amount owing, interest rates and ongoing bills, you may get ideas which will make your situation easier to manage.

[cooliemae]

Just take note that the amount of money that is forgiven is often counted as taxable income. I would agree that settling the debt with the bank is probably the best move, but don't be surprised when you get a 1099-C in the mail and are expected to pay taxes on it.

[GrimJack]

Just take note that the amount of money that is forgiven is often counted as taxable income. I would agree that settling the debt with the bank is probably the best move, but don't be surprised when you get a 1099-C in the mail and are expected to pay taxes on it.

You don't often get the 1099c because that money is written off on Dec. 31 and your first notice may be a CP2000 letter from the under-reporter unit of the IRS - 2 years or more later ("why didn't they take it from my big refund last year?"). Sigh! It comes as a shock since so much time has passed since the debt was forgiven.

BTB - that CP2000 letter is not a bill, it is a notice of discrepancy between what you filed and what was reported on you. If you do not agree with the letter call and see what is needed to clarify the situation; like a company sends both a W-2 and a 1099misc for the same work or the items were reported on the return but somehow the AUR unit missed (automated under reporter)