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I Settled One of My Debts But I Have More and They Don’t Want to Settle. – Lori

Lori

“Dear Steve,

We have about $9K on one credit card which Bank of America agreed to settle for $5400. I just spoke to them on the phone and they said, “Do you want to settle?” then offered me the deal. It has gone through no problem. I tried an email to three other credit card companies but they turned me down. I have some cash but need to brace for lower monthly income as my husband was just laid off. I am thinking a good strategy would be to settle my other cards.

I want to settle with three of my credit card companies. I have emailed them to offer them a cash settlement. They all three turned me down. I would like a thrid party person to negotiate for me because I did not get anywhere. The three companies are Care Credit (GE), Bill Me Later and Orchard Bank. Do you know of such a service?

Lori”

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The Answer

 

Dear Lori,

Settling one creditor before you reach a deal with all your creditors is not a wise move. Settling your debts does not get you out of debt unless you pay off all of them. Basically what has happened is that Bank of America swooped in to get what they could before you gave some of that cash to someone else.

With your statement about having only “some cash” and anticipating lower income I can’t see how settling your other debts makes much sense.

Hopefully Bank of America told you about your potential tax consequences on the debt they forgave. At the end of the year Bank of America will send the IRS a 1099 showing the amount of forgiven debt, $4,600 and you will owe income tax on that money, just as if you earned it.

When I have asked creditors in the past why they don’t inform people about this huge issue they have said we are creditors, not tax advisers.

I think that in a situation where you don’t have at least 60% of the cash on hand to settle your other accounts, the other creditors won’t agree to a settlement, and you’ve had a substantial loss of income in the home, that bankruptcy is a much more reasonable solution. And guess what, in bankruptcy there is no tax due for forgiven debt.

Remember this, no creditor has to settle a debt for less, and they might not.

Big Hug!

I Settled One of My Debts But I Have More and They Dont Want to Settle.   Lori
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • jonathan

    i recently work for a creditor and I am also doing financial consulting as a part time. since i work with a major creditor i have very good perception and knowledge on how to settle debts… if interested you can always contact me..

    especially in unsecured debt and heloc, 2nd mortgages and home equities

  • http://www.debt-elimination-services.net George Webber

    Well I will start off by saying that I am not a fan of settling debt, but also realize sometimes there are no choices. Here is my suggestions as I help my customers develop debt solutions like this all the time. Giving away your saved money may be very un wise as you may have a greater need for it.
    Start preparing for reductions in your expenses, cut down on your groceries, electric etc etc. Start looking for any sort of work that can provide enough to get you by…

    Start eliminating your debt as fast as possible- there are ways to do it without breaking the bank. Take a systematic approach. Concentrate on one at a time making only the minums to the others . Make your regular payment at the end of the month and any samll incremental payments you can during the month. This will help reduce the balance faster which will also chip away at the interest charges, all and all this will help you free yourself up faster. If it becomes imparitive to settle at a later date you will owe less which should make it easier to do so at that time.
    Good Luck

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