How would a settlement with a credit card company affect my credit?

Question

My wife ran up about $15,000 in charges behind my back over a period of a year and a half. So I all the sudden realized I owe this money and my credit score has now plummeted from about 700 to 500. The company I am dealing with is really pushing me to settle it for $6500, but they said that:
A. It may adversely affect my credit depending on my score
B. I will get a 10-99 form from Uncle Scam and have to pay taxes on that money.
I am not sure what to do. I am always suspiscious that it ISNT in my best interest to do something that the creditors are "really encouraging" you to do. I guess what I am wondering is how badly my credit will be damaged. I have read that when your credit gets to a certain level, it is actually positive on your report that you settled. I also want ot know if anyone knows how much I would get charged by the government via the 10-99 on $6500.

Answer 1

Divorce her.

Answer 2

Oh wow! What a sticky situation. Hmmm. I would definitely write a consumer statement and ask all three bureaus to place it on your report. Whichever method you choose to resolve this will probably have a negative impact on your report and score. This way other creditors can see what happened. (15K in a year and a half?! I'm so sorry to hear that).
Ok. Are you past due on the bills? Are you working with the original creditor or a collections agency at this point? Those two bits of info are kind of important, but I'll give the best advice I can.
If you settle for the $6500, you will have $8500 "to the good", so to speak. They will send you a 10-99 at the end of the year stating how much you need to include with your regular taxes. You have to declare this as income and pay taxes on it. It stinks, I know. As far as I know, you don't have to pay taxes on that amount separately. When you do your taxes, you know how they ask you to add the amount of box "whatever" and put it on line "whatever"? There would be a box on the 10-99 that you just add to the other boxes.
Sounds like you credit is already damaged and honestly, it cannot get much worse. If your credit is already wrecked and they send it to collections, your score might only drop a few points. It's kind of like spitting in the ocean at this point. But don't be discouraged! It's a good thing that you've hit bottom. Nowhere else to go but up.
I hope that helps (AND makes sense).
Good luck!

Answer 3

My brother-in-law works for a bank doing collections on credit card. A credit card settlement stays on your credit record for 7 or 10 yrs, something like that.

Before when you would be able to file Bankruptcy on credit cards that was the best way to go, because it stays in your credit for 10 yrs but you didn't have to pay any of the money owed.

Laws have changed as of last year, and I think now its like borrowing the money from the government. They pay all your debits and you pay them back in much smaller payments.

But I don't understand why they would send you a 1099, I have only seen the 1099's used for self contractors. You would have to pay almost double the amount that you would pay if you got that amount paid by your boss, if you look at your paycheck under deduction for the federal your employer matches the same amount that you get deducted. So by getting a 1099 you have to pay all the taxes yourself including the portion your employer would pay to match yours.

I would consult a law firm that deals with Bankruptcy and tell them all your debits and everything the bankcard company said, they will tell you what is in your best interest. Don't do anything until you are sure of everything, and if that means call more than one or two place's then do that. The consultation calls are FREE you can find them in your news paper.

Best of Luck!!

Answer 4

you're no longer truly able to barter. in case you borrowed the money a 0% up before, the credit card corporation has lost funds on you already to administration and the pastime they have paid for the money you used. They do this with a view to earn your employer interior the hopes they are going to get well a income interior the destiny. I doubt they are going to settle for something much less that a hundred% fee in comprehensive. as quickly as you omit some funds(and your credit is ruined) they'd negotiate with you to stay away from having to sue you for the money and flow in the time of the flexibility of garnishments and liens on your components. in the event that they do settle, your credit will nevertheless instruct previous due funds and the cardboard would have a freelance prestige(a brilliant adverse). Your credit could regularly get well after 2-3 years yet won't totally get well for 7. something in need of a hundred% fulfilment of the settlement will reason you severe difficulty with your credit and doubtless deliver approximately civil action against you besides.

Answer 5

I use to work for a collection agency and they do take settlements, your debtors would rather see "Settlement" on your account than "Debt not Paid" after the debt is settled you can write each and every credit agency this was posted on and add an explanation to why the account was in the state it was in and what you did to settle it. It is your responsibility to make sure the collector has reported it to Equfax, Experian etc. Make sure you get a settlement letter faxed or mailed to you showing they will take ex amount for a settlement also after you have paid the settlement make sure you get another letter stating the account was paid as agreed. You yourself are responsible for following up on all of this. Not the collection agency. Good Luck

Answer 6

Man, you have to weigh the pros and the cons here, because on the one hand you gain a good 10,000 dollars, at least.

On the other, as for your credit score, you're about as well off declaring bankruptcy except you can't do that with such small a debt (no offense).

Either way, with a FICO of 500 it will take years to recover, you have to figure out how long it will take to pay it off...
If it takes as long or longer to pay it off than about 5-6 years, then consider the charge-off, it will hurt you for about that long thou it stays on your record for seven!

You see what I'm saying, is if it only takes you a year or two to pay it off then it would make sense to do that, even 3-4 years it's probably better to pay it off.

At the same rate, charge it off and take the bonus and run, but you'll be on a cash-only basis for a long time, which isn't entirely the worst idea either (cash only helped me bring my FICO to 809 but it took dang near 9 years too). Still, bad credit or not, cash only method doesn't care.

So it's up to you, but do weigh the pros and the cons.

Answer 7

Oh what lovely question to use for educational purposes!

For starters, you are absolutely correct to suspect what a collection agent tells you. NEVER EVER believe them!

Lets take Johnezlady's answer as just one example....I'll use this answer because it's a classic example of what collection agents do....let me point out the lies!

1) "Your debtors would rather see "Settlement" on your account than "Debt not Paid" after the debt is settled"...

FACT: Unless the loan you are looking for is huge (car loan or mortgage), creditors rarely look at your credit report. They look at your score!

A debt marked "settled" looks just as bad to your credit score as "charge-off" or "in collections". It's still a negative item on your report. This lovely lie makes it sound like you are helping your credit report, but it really doesn't!

And the simple fact that it says "settled" highlights the fact that you had a credit problem in the past, and it's right there to haunt you again!

2) "You can write each and every credit agency this was posted on and add an explanation to why the account was in the state it was in and what you did to settle it."

FACT: That 100-word statement you place on your credit report means absolutely ZIP! Your credit score does not use it as a factor in the calculations. And loan officers see it as just an excuse of why you didn't pay a past debt. Very rarely will such a statement ever help your case, and NEVER will it improve your credit score.

3) It is your responsibility to make sure the collector has reported it to Equfax, Experian etc.

FACT: Totally the opposite. You, as a consumer, have no control over what goes into your credit report. Only the creditor has that ability...and ONLY the creditor can change/remove anything that is posted. So why on earth would a collection agent say such a silly thing?

If the creditor does not correct an account to show a payment was made (or settled in this case), then you can file a lawsuit against them for damages, and collect a quick $1000 for your trouble. This probably explains why Johnezlady is a "former" collection agent.

Here is how you need to handle this....

Contact the agent and work out whatever settlement you can afford to pay. BE SURE to get any agreement in writing, and include the following:

1) What you are paying as a settlement reflects the entire amount...paid in full! If you don't get this wording, they can sell off the remaining balance to another collection agency and you get to play this game all over again.

2) Make them agree IN WRITING to DELETE the entry from your credit report. Remember, just putting "paid" on your account does not delete any negative info about late payments, charge offs or collections. It will still be a negative item on your report, and it will hurt you for the next 7 years. Make them delete the entry! If they refuse, why on earth pay the debt?

3) Get a detailed payment plan. List the amount you owe each month, and how many months you are expected to pay. Otherwise, you may discover a letter in the mail from them demanding you pay the entire balance at once.

One of the nifty tricks they use is to ask for a "good faith" payment, where you pay a small amount to demonstrate your intent to pay the debt. What you have actually done is restart the Statute of Limitations on the debt, giving them much more time to harrass you and sue you in court. Don't fall for it!

Demand that the validate this debt and show exactly how much you owe and how they calculated it. I have worked with many, many people who had their balance jacked up for undocumented reasons. In one case the collector demanded $9000 for a debt. When I got involved, it suddenly dropped to $6000?!?! When I threatened a lawsuit they finally came up with documents showing only $5400. NEVER BELIEVE A COLLECTION AGENT!!!!

As for the 1099....this is a report to the IRS that says you gained income by not paying off a debt. You will have to include it as income on your income taxes. How much you pay depends on the tax bracket you are in....but lets just assume about 15%. Therefore you can expect to pay about $2250 on a $15,000 debt. Just another tool collection agents like to use to leverage you to pay up.

Edited:

I seem to have new fan! Hey Stu....perhaps a clue of what you are talking about would be nice? You have decided to follow all my answers and bash me, but you conveniently lock your profile so I can't send you messages, ask questions, or research what bug crawled up your butt. Got a problem? Email me. Not happy with my answer? Post a rebuttal, but GIVE YOUR SOURCES! Obviously you are a collection agent who gave a poor answer and I took you to the carpet on it. Get over it.

Answer 8

All that I know is that some yrs. back- I settled and when I went to the bank some yrs. later that "charge off" hurt me more that anything.