Credit Card Problems
I am often asked to speak at high schools to students about to go to college about understanding credit cards. College is a time when anyone can get a credit card. And you should get one. It’s a great way to build your credit. But you have to be smart about it. You have to buy what you can only afford. You shouldn't be using it for coffee and burritos and not paying if off in full. Paying interest on coffee an burritos for long into the future is not fun.
What happens when the bills pile up and you cannot pay?
One of the services I offer is to negotiate debt with credit card companies. I charge money to negotiate debt down significantly to a lump sum payment. However, this is not simply a free discount. First, there is income tax liability for any debt that is forgiven by the credit card company. So you would pay taxes as if it were income. If you have large losses, the income would be offset by those losses. If you do not have any losses, that income is income, and you pay taxes on it.
Second, even if you pay the credit card what they settle for, it will not be reported as paid in full. It will either be reported as settled or closed. That could negatively affect your credit. However, when people come to see me, their credit is usually poor anyway.
Depending on the client and their financial situation, I can negotiate discounts in the 50% to 75% range. Many times I am hired to do this because a client either does not qualify for a bankruptcy, or it does not make sense to file one because either they only have a small amount of debt, or they have a lot to lose.