Tuesday, November 20, 2007

Settling on Discover Card

I got a very pretty blue envelope yesterday in the mail and it contained the following offer: "Our client will accept $2133.22 to settle this obligation."

The total balance due is currently at $5333.04, so I talked it with my wife and we're going to hold off on the Menards balance and tackle this one instead. I paid half of it last night and they will do the remaining balance on 12/3. I was thinking that it was going to take $4,000 to settle this one. This bumps up my aggressive settlement goals as follows:
  • Discover on 12/3
  • Home Depot on 2/5/08
  • Menards on 3/20/08
  • Capital One on 5/20/08
  • Other Misc Debts by 8/31/08
We'll be free of all this by our birthdays in September!

9 comments:

Jim ~ mydebtblog.com said...

I think debt settlement is great when you've been in a bind and cannot make payments on a debt. The trap of missing payments and all the fees and interest piling up almost becomes impossible to get out of without settling the debt. To get another debt off the list is such a great feeling. It sounds like you have a plan to eliminate these in a year which is great. I do have a couple of questions regarding your methods of debt settlement.

When these offers come in to you, how do you go about paying them? I would be very weary of giving them electronic access to a checking account by debit card or even using a personal check they could get the routing and account number. There's a chance they could just take the full amount if you do that. I'm also not sure about making two payments on a settlement. A settlement is usually a bulk payment that settles a debt.

Another thing I'm not sure if you have considered are the tax implications on settling debt. The IRS usually gets a 1099-C and will treat settled debt as though it were your income. Basically you would have to pay the taxes on this extra income, which is less than having to pay the debt in full, but it's still something to consider. I think the only way around this is if you can show you're insolvent, these 1099-Cs can be waived. You may want to look into that when you figure out your 2007 taxes since you have settled quite a bit of debt.

Sick of Debt said...

How I go about paying them: I have a separate account at a different bank specifically for these settlements that is separate from our day-to-day account. I make sure to note the day/time/people I speak to at the place and only work with 1 place at a time. If they try to take the full amount, it's not going to be there. The only reason that we're doing this one into 2 payments is because they are playing the game of "We need something before the end of the month or else..." My normal method is a single settlement payment.

I know about the tax implications regarding settling debt, they remind me of that sometimes on the settlement letters. Thank you for the suggestion of looking into proving that I'm insolvent, from what I just read it's pretty much my situation.

stevenb said...

Can you describe to me how you did it?

They are giving me the we need 10% of the balance by the 31st or it's going to our attorney.

Any advice would be helpful as we're at the end of our rope!

Thanks!

Sick of Debt said...

Here's how we did it (not recommended for everyone):

- Ignored their calls since we were unable to make any payment to them for over a year.

- Kept every letter they sent us in a folder.

- The "attorney threat" comes sometimes, that can mean heading toward a judgement (which just validates that they are owed the money) or could just mean the attorney's office will be the new debt collector (and possibly accepting smaller amounts). I have one CC that has been at an attorney's office for over a year now. I kept them at bay from a judgement by sending them a small amount every month.

- Made a counter-offer that we could meet.

- Sold everything we could to bring in the money.

- Took on roommates to help with the lack of funds.

Most of all, remember to take care of your family first and pay what you can. If they decide to go down a tough route, you'll know you did everything you could do without harming your family.

Lost In Debt said...

I'm about 110 days late with Discover and they won't even talk settlement with me. I've offered them 40% but they keep coming up with all kinds of reasons they will not settle and then told me they honestly never settle for less than 60% - I've read about 40% settlements. I'm getting very discouraged.

Sick of Debt said...

@lost in debt,

As you posted on your blog, the account needs to be sufficiently old before they will negotiate. When I settled on my Discover, I think I was 9 months late. By that time it had been sold to a "collector" (which are sometimes owned by the same entity I've learned, just under a different corporation name).

Birdman said...

I had a call from A collector last night - he said Discover would probably settle for 25% of my debt (17k) - I havent been able to make a payment for 8 or 10 months - I told him it was too much as I had other unsecured debts. He said Discover would not go below 25%, but we will see about that. I am going to hold off and see if I can get less, or else I am going to have to bite the bullet and file bankruptcy (which I would prefer to avoid)

I hadn't heard that if you settle debts there may be a tax liability - this may cause problems (I prefer not to owe the feds anything) - does anyone have any information on this?

Sick of Debt said...

BirdMan,

Yes, if you settle debts there will be a tax liability if you are solvent. If you are insolvent (meaning your liabilities are greater than your assets), then you can fill out form 982 with the IRS to not be liable for the taxes related to the settlement.

I'm also against bankruptcy as the best solution, as that does not change the patterns in life that caused the debts. I know that some are caused by items out of one's control (or appear to be), but even at those times there is a fair amount under the person's control.

Scott Stiller said...

I had $120,153.17 of credit card debt.

I just settled all of my credit card debt for $24,980

I wrote my story down.

http://scottchopchop.com/cczp