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Using Your Year-End Bonus to Solve Your Debt Problem - YouTube
Channel: Consumer Warrior
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(upbeat music)
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- Hey everybody and welcome back to the
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Consumer Warrior Podcast,
this is the podcast that's
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dedicated to helping you
with your big debt problems.
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If you're just dabbling
in debt this isn't the
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podcast for you, we deal
with the big debt problems
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like repossession, debt
collection lawsuits,
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foreclosure, bankruptcy
and all the other horrible
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financial problems that are out there.
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We're here to help you to help yourself,
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welcome back to the show,
I am your host John Skiba,
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and I'm a consumer
protection attorney in the
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state of Arizona and in this
episode I want to talk about
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what you can do with your year
end bonus, assuming you're
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still lucky to get one
from an employer as far as
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dealing with your debt problem.
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Now I'm recording this episode
towards the end of the year
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so this is really something
that will be beneficial
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to people who receive year end bonuses.
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But the principals that
I'm going to talk about
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as they relate to debt
settlement are applicable
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to really any time of the year.
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But before I get into that
topic, I want to talk about
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our sponsor today which is
the Consumer Warrior project.
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Let me tell you a little
bit about what the
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Consumer Warrior project is all about.
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And that is providing you
with tools to help you to deal
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with the legal issues that show
up in serious debt problems.
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So if you're representing
yourself in a debt collection
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lawsuit, or like a credit
card company or a debt buyer
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has sued you, if you're
trying to decide if bankruptcy
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is a good option if you're
dealing with repossession.
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Whatever the legal issue
is, there's different tools
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and templates, forms and
even some video tutorials
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that I put together, over
at Legal.Coach that's the
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actual website, www.Legal.Coach
you can go over there
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and find all those tools
and resources to help you
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as you navigate the legal
part of your debt problem.
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Okay so let's get into
today's topic which is dealing
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specifically with you know
it's really a debt settlement
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question as far as what's
the approach you should take
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in trying to settle your debt.
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But particularly at the end
of the year there's a couple
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of factors that can help
you in getting your debt
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settled more quickly, and those are one is
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a lot of employers pay
out end of year bonuses
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or some sort of lump sum
Christmas bonus that you
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could use to help settle your debt.
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And the other thing is that
many of the debt collectors
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are eager to get the books
closed out, or they're paid
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on a commission so they want
to get things taken care of
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so they may take less just
to get things resolved
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prior to the end of the year.
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Now if you get the bonus
here's my recommendation
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as far as the approach you need
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to take to getting it settled.
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The first thing you need to
do is to create a settlement
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budget, you need to look
at the amount of money that
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you're getting, what you're
going to be able to use
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to try to settle these
debts and determine really
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what the most is that
you're willing to pay.
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And then come up with
maybe some starting points.
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And before you can do that
you got to know the totality
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of debts that you're dealing with.
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And so my recommendation
is that you get a copy of
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your credit report, you
can get one of those at
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annualcreditreport.com
the federal law allows,
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so once a year you can get
a copy of your credit report
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for free, usually doesn't
have the score on it.
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But you can get a copy
of it and at least see
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what debts are owed, and
then what you do is create
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like I said a budget you
need to allocate certain
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portions of the budget
depending on the types of debts
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you have, now if the bonus
that you're getting is not
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significant enough to really
deal with all your debt
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problems then you need to
focus on the ones that maybe
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are the most problematic,
you know is there one that's
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suing you right now, are you
behind on your car payment.
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You know what are the types
of things where they're
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going to cause a little
bit more pain than the ones
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that are more dormant and
aren't really doing anything.
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And once you come up with
your settlement budget
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then you need to start
reaching out to the creditors.
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Now a couple things before
you send money to everybody.
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You need to see who the actual
owner of the account is.
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This is particularly true when
it comes to credit card debt
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because now a days it isn't
like it was even 10 or 15
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years ago, where most creditors
sued on their own debt.
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If they sued at all,
what they often will do.
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Most credit card companies
now will package the debts up
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once they become delinquent
they charge them off,
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package them up and sell
them to these companies
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that we affectionately
call junk debt buyers.
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They go out and buy really
delinquent accounts for
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pennies on the dollar and then they
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usually file suit on them.
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Now you want to make sure
who the right party is that
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you're dealing with because
this can be complicated
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even further by the fact
that many original creditors
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and even junk debt buyers
will hire debt collection
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agencies who actually
don't have any kind of
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ownership interests in the
account but they've just been
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they're hired as a hired gun you know.
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Essentially to go out and
see if they can get some type
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of payment on this, so
you want to find out who
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the correct party is that
you're dealing with who actually
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owns the account so that you
know who the correct people are
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to reach out, and the best
place again for you to find that
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out is by looking at a
copy of your credit report.
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Same thing goes with amount
owed, once you know who the
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correct party is to contact
you need to reach out
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to them and find out what
the exact dollar amount is
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that's owed on the account
and then if you have any
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discrep-- if there's any
discrepancies or problems
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you have with that you need
to have them provide you
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with a breakdown which
they're required to do if you
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request it in writing under
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the fair debt collection practices act.
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Now when you're putting
together your settlement budget.
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I have some kind of rules of
thumb that I work with when
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I'm working with clients
to try to settle debt
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and that is you know let's
say I have three different
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creditors that I'm trying to work with.
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The first thing I look at
is the owner of the account
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is it still the original
creditor or is a debt buyer?
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Because if it's a original
creditor you're going to need
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to allocate more money to
that particular account
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to get it settled effectively.
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And the reason why is
because they typically do not
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take less than the amount
owed unless it's a pretty
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significant chunk you
know, to get it done.
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Or if it's very delinquent.
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So the original creditors I
set aside a little bit more
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in the budget to get
those cases settled out.
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Now if it's a junk debt
buyer, you know this is a
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company that paid pennies
on the dollar sometimes less
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than a penny on the dollar
to purchase this account
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so you can set aside a little bit less.
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To try to settle out those accounts.
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And I also kind of lump
medical bills in with this type
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of settlement as well because
generally my experience
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is medical collectors, and
medical providers will often
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take considerably less
than what's actually owed
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even more than original creditors.
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So even if it's the same hospital
that provided the services
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they'll often take much less
than what's actually owed
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just to get this cleaned off their books.
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The percentages that I use
original creditor I always say
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you need to allocate at least
50% of what they're claiming
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is owed to try to settle it.
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You're obviously going to
start much less than that when
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it comes to negotiation but
you need to have at least 50%
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set aside, if you're dealing
with a debt buyer I say 15-20%
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of what it is that they're seeking
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and medical debt I would say 15% as well.
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You're always going to
start lower than what it is
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that they're-- where you
want it to actually settle.
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Because regardless of what you
offer them, you could offer
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them 99% of it and they're
going to come back at 99.5.
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They're going to come
back and want some type of
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higher amount so start a
little bit lower than where you
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want to end up and what you
have the ability to end up
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based upon this settlement budget
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that you're putting together.
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And start your discussions that way.
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Now particularly if it's
like the end of the year like
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this where you only have a couple of weeks
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and like I said they're going
to be motivated to get this
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done, you're probably not
going to have a lot of time
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to send letters back and forth.
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And so what you need, you can
do this over the telephone
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but one thing that I highly
recommend and I require in all
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of my negotiations is that
if an agreement is reached.
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If the debt collector, the creditor,
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debt buyer whoever it is says
okay we've got a deal here.
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I need something in writing
before they get a payment.
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It can be an email, it can
be a fax it doesn't have to
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be anything formal but I
need something in writing
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saying that they're willing to
take a certain dollar amount
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to take care of the account in full.
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And that they will update the
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information on the credit report.
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Now one thing that you
want to understand here,
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something that a lot of
people get caught up on
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when they're doing debt
settlement, is they want the
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people the creditor to delete the account
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in it's entirety, so they
want to settle the account
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and say you know what you got
to delete it off my credit.
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And it's understandable
you're trying to improve your
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credit score, you want this
negative derogatory account
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just off there, most creditors
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will push back against that
it doesn't hurt to ask.
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But most creditors will
push back against that.
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And the reason that they
give, I have a little bit of
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sympathy for because I
think they're right at least
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a little bit, in that
you know their obligation
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if they're reporting something
to the credit reporting
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agencys like TransUnion,
Equifax, Experian, their legal
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obligations are if they are
providing information to
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those credit reporting
agencies is that they have
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to report accurately and so
what they will say is hey.
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We'll report that you've
settled this and that's how
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it will generally show up,
it will say settled for less
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than the amount owed but
we're not going to misstate
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anything as far as just
getting rid of it or saying
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that you paid more than you did.
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They're just going to say
what happened happened.
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You'll still get a benefit
to that because it's going to
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show that it's settled
but it won't be an active
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collection account it won't
be an active derogatory.
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And it will eventually fall off.
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So you can ask for them to remove it,
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generally doesn't happen
it will happen sometimes
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and people will put
that in the notes to the
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you know the comments to
this video or this podcast.
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I understand that 'cause I
always ask as well but I'm
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saying it shouldn't be a dealbreaker.
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Because you're in a
position right now to get
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something settled and get it
taken care of pretty quickly.
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So once they give you
something in writing, again
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whether it's an email, fax whatever it is.
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At that point you're good to
go, you can make the payment
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on it, one final thing.
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And I probably should say
this even before you send
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the money, something you need
to understand when you settle
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debt is that there's
potential tax liability
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for settling a debt.
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And how this works is, if a
creditor forgives any amount
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over $600 they're required
to provide to you a 1099-C
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and what the 1099-C is, is it
states that any amount over
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$600 you actually have to
treat as income on your taxes
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next year, so let's say you
have a credit card account
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and it's $10,000 and
it's just this old thing.
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It's charged off and they
agree to settle for $2000,
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so you pay them the $2000 well
then you can expect to get
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in January, usually the very
next January, a 1099-C from
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that company for $8000,
because that's the amount
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that was forgiven you then
when you prepare your taxes
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have to show that 1099-C and
it may be treated as income
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for purposes of filing
taxes, which means you could
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end up paying taxes on that
$8000 of forgiven debt.
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Now that is you know that
sucks, but I always say it's
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better to pay taxes on $8000
than it is to pay $8000.
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I also tell people, if you're
doing a lot of debt settlement
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and you're expecting a
lot of 1099-Cs to show up
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the following year, highly
highly recommend you use
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an accountant or a CPA
who is familiar with that
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whole process while
you're filing your taxes.
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Even if you typically do
it on your own and you feel
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totally comfortable doing
it, I would highly recommend
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you use an accountant
because there are some.
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I don't want to call 'em
loopholes but essentially
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if you are insolvent at the
time, that you get the 1099-C
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there may not be any tax liability at all.
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And this is particularly true
if you have big credit card
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debt I mean if you're dealing
with credit cards that are
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$20,000 and $30,000 and
they're settling for $10,000 or
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something like that you
could get really large 1099
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liability in the future.
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So it's important that you
have somebody helping you
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with the taxes on that to
help you to avoid as much
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of that liability as possible.
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So hopefully you are
getting that big bonus
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and hopefully this is a
great end of year for you
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and this is the first step in really
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getting the debt problem
you have under control
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and getting these accounts settled.
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I appreciate you listenin
in today, that is going to
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do it for this episode of
the Consumer Warrior podcast.
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Again if you need some help
with these things I recommend
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you head on over to the
Consumer Warrior project page
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at Legal.Coach that's www.Legal.coach
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where there are forms,
templates, video tutorials
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and all kinds of things to help ya out.
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I appreciate ya watching today
and I'll catch ya next time.
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(upbeat music)
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