We’ve Been Unemployed and Run Up Debt But I Just Got a Big IRS Refund Check. – JMS

“Dear Steve,

Mutiple layoffs for both my husband and I over the past 3yrs. He was laid off 2x and I 1time. Also have 3homes. Actually have good credit and have not missed any payments.. now the tough part.. 😀

We just received the tax return from heaven ( didn’t expect it to be this large, but it’s a nice blessing). Due to several job layoff’s we accumulated nearly 33k in CC debt. 1 card very high interest rate 30% and 2 others at nearly 15%. We just received a 22k tax return t ( I withheld more $$ due to my husbands self employment) I want to pay off the highest interest loan immediatly- then put any additional sums we have toward the other 2 cards and pay those off within a year. I have about 5k in work that needs to be done on car maintenance, prep for HOA’s, Insurance etc for the end of the year. Would this be the best way to apply the funds.

I met you on a flight.


Dear JMS,

Well hello.

So here’s what I’d do. Out of the $22,000 I’d suggest you set aside $5,000 in a savings account if you don’t have an emergency fund sitting around right now. Use another $5,000 to bring things back into shape as you have planned.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

That leaves us with $12,000. If you goal was to eliminate your debt in full for the remaining money you might want to Michael Bovee at Consumer Recovery Network and he can show you how to settle your own debt. His services are affordable and successful.

But beware, settling debt will leave you in default initially and that will be a negative item on your credit report but with the cash on hand you should be able to settle all the debt quickly.

If you are solvent after eliminating the debt then you may owe income tax on the forgiven debt between where you are solvent and your final net worth.

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If taking the credit hit is not something you are willing to do than you can look at using the $12,000 and direct it towards the highest interest rate debts first. However, since this will not fully pay off your debt you need to make sure that things around the house have stabilized financially so you don’t winding up paying off $12K but running it back up to make ends meet.

If you feel confident the financial future look brighter, then you could look at an unsecured debt consolidation loan from LendingClub.com for the remaining $18K. This would give you an affordable payment and keep your credit looking sexy.

Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach

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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.
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