Dealing With Debt, Part 1, Debt Management

Does Debt Management really work?  Will I improve my credit score with Debt Management?  Will debt collectors start leaving me alone?

These are just a few of the Frequently Asked Questions about Debt Settlement.  We get them all the time, even though we have numerous blogs about all of the aspects of debt management.

Confused about credit card statement

The truth is, anytime someone gets into trouble having accumulated too much debt, fear of the unknown and misunderstanding about what debt collectors can, and can't do, takes over.

Almost everyone in America has some form of debt. Many people use debt wisely and are OK.  But many people (people just like you and me) have gone through, or are going through a very tough time, financially. 

  • How do you deal with to much debt?
  • What are your options?
  • What can debt collectors do to me?
  • Can they levy my bank account or garnish my wages?
  • Will I have to file for bankruptcy?
  • To be honest, I'm scared!

Over the next three series of blogs about Dealing With Debt, I hope I can answer most of your questions and help alleviate some of the fear and misunderstanding associated with having too much debt.

For this series, I will be addressing UNSECURED DEBT, such as:

  • Credit Cards
  • Store Credit Cards
  • Personal Bank Loans
  • Private (not Federally backed ) Student Loans
  • Repossessions (specifically "deficiency balance", which is the remaining balance after your car, boat, etc. was sold at auction)
  • Pay Day Loans

SECURED DEBT, such at your home, auto, Federal Student loan, etc. have to be dealt with differently.  I will address these in later blogs. 

There are really only a few options when it comes to dealing with too much unsecured debt:

  • Debt Management (or Credit Counseling) Program
  • "Debt Roll-Up" or "Debt Reduction Snowball Plan"
  • Debt Settlement Program
  • Bankruptcy


In the "old-days", well, not really that long ago, when a consumer got behind on their credit card payments, A non-profit, credit counseling (a tax entity title...yes they do make a profit...a lot of profit!) program was created to help people get back on track.

Basically, in a Debt Management Program , instead of making minimum payments to each of your creditors with high or very high interest rates and fees, if you qualify, you will make ONE PAYMENT to a Debt Management Company.  They have established guidelines with all of the major creditors to usually:

  • Lower your interest rate
  • Re-Age or forgive late or over-the-limit fees
  • Stop creditors from calling
  • And, a Debt Management Program IS NOT A FACTOR when calculating your credit score.
  • Most Debt Management Programs last about 4-5 years, depending on how much debt you have, etc.

Although a Debt management Program can help reduce the total amount of interest and fees you will end up paying until these debts are paid off, your required monthly payment may be more than you are making now!

The Credit Card Industry realized several years ago that the worst thing that could happen to them, from a profit stand point, was to have their consumers actually pay off their credit cards.

In the early days of credit cards, the minimum payment could be as high as 4%-5%, depending on each company's policies.

Think about that... 

Let's say you had a balance of $10,000 on your XYZ Credit Card, with an Annual Percentage Rate of 19% and a minimum monthly payment of 4.5% of the balance.  

I know the credit card contracts are almost impossible to understand, so let's keep this simple:

On a balance of $10,000 at 19%, your annual interest charge would be about $1,900!

Divide the 19% interest rate by 12 (12 months in a year) and you get a Monthly Interest Rate of 1.5833%.  $10,000 multiplied by 1.5833% equals $158.33, but's let's round off to $158.

Add the $158 to the $10,000 and you have $10,158, which is the NEW BALANCE.

Multiply that by the Minimum Monthly Payment Percentage of 5%, and you get $507.90 or $508 as a minimum payment.

So, you send in the $508 payment.  Next month, you get your statement, and it shows $10,158 less your $508 payment leaves $9,650. 

But wait...there's that interest charge again!

$9,650 multiplied by 1.5833% equals $152.79 or $153.

Add $9650 plus $153 and you get $9803 as your New Balance (assuming you didn't make any more more charges!)  Multiply that by 5% and you get $490.15 as your minimum monthly payment. Wow!

Yes, in the "old days", your were forced to pay off your credit cards sooner (if you could afford the minimum monthly payment) and therefore saved more money in the long run.

But, the Credit Card Industry got wise and decided to only charge 2% or maybe 2.5% as a minimum monthly payment. 

Without taking a lot of time repeat the above process, you should be able to see that on a balance of $10,158 if you only had to make a 2% minimum monthly payment, your payment would only be $203 instead of $508!  That's $305 less!  Good deal, right?

Well, here's what happened:

For the credit card industry, it was a very, very good deal! But, for those of us who didn't think the process through, we thought, "Wow, I could barely afford the $508 miniumum monthly payment, but at $203, I can CHARGE UP ALMOST TWICE AS MUCH  and still make the payment!" 

So, charge, charge, charge!!!  And we know what happens.  Now you have $20,000 of total unsecured debt at an average annual interest rate of say, 19%.  But, you only have to pay 2% of your "new monthly balance" each month.

OK, $20,000 multiplied by that annual interest rate of 19% divided by 12 or 1.5833% equals $317 of interest.  Add that to the $20,000 and now you have $20,317.  At 2%, that's a minimum monthly payment of $406.  Cool!  Your monthly payment on $20,000 is actually less than it would have been (back then) on $10,000.

Watch out! We all know where this is heading! 

All kinds of calculations are out there on the web that show that if you only make the small minimum payments on your credit cards until they are paid off, you will end up spending 3-4 times as much as you originally borrowed! On $20,000, you could end up paying back $60,000 - $80,000 over many years!

Good deal?  Only for the Credit Card Industry!

So, you call a Debt Management Company.  They go through all the financial consultation (free and if not, hang up!) and determine that your Debt Management Program will be approximately $550/month, which includes their montly fee as well as an enrollment or set up fee to get started!  

But,  if you have an extra $150 (that you could use to qualify for the Debt Management Program), you would be debt free in about 48 months and save thousands of dollars in interst and fees.

Not bad at all, but there is another option.

Debt Roll-Up or Snowball Plan

If you have the extra money, and the self discipline to set up and follow a Debt Roll Up/Snowball Plan, then you should consider doing this instead of using a Debt Management Company.

Why?  Well, of that $550 required in this hypothetical Debt Management Program, $50 (or maybe a little more) may be going to the Debt Management Company to administer the plan.  Now, that's not outrageous, and if the program ends up not only saving you a lot of money in the long run and giving you peace of mind, then go for it.

But, if you are like me, I like to do things myself if at all possible and, I don't like spending a dime more than I have too!

I've written an entire blog about a Roll Up/Snowball Debt Program. Click here.

But what if you are in deep financial trouble?

Maybe you have:
  • Lost your job
  • Went through nasty divorce
  • Lost a spouse, loved one or partner
  • Been Disabled and are permanently Disabled and only receive Disablility Income
  • Are retired and the fixed income from your Social Security and/or Retirement Plan is just not enough to keep up!

Then you should check out a Debt Settlement Program.

I will be writing about that in Part 2, but if you'd like to know more now, click below:

FREE EBook Debt Settlement  Basics

Is a Debt Management Program for you?  It depends on many factors.


Photo credit:

Jason Rogers



Tags: credit card debt, debt snowball, debt, credit counseling, debt management, credit cards, credit card debt help portland or, snowball plan

Beware of the Credit Card Trap!

Are you a victim of the "Credit Card Trap"?  Too much debt?  No end in sight?  If you are, here are some ways to free yourself.

I've been helping people become Debt Free for over 10 years.  The average person that seeks help for getting out from under too much debt,  got into trouble by falling victim to the traps set by the credit card industry!

shop now pay later  

I saw this sign (above) yesterday in the parking lot of a major retailer and took a picture.

"Shop now, pay later"...pretty much says it all, doesn't it?

Years ago (many,many years ago), a credit card was not easy to get.  You had to have excellent credit, above average income and employment history...basically, you didn't really need one.

The idea of using a credit card was for convenience.  Rather than having to carry a lot of cash or write a check, you could just whip out the credit card.  Then, when the statement came, you paid it off...100%.

The credit card industry charged a reasonable interest rate, demanded a minimum payment of around 3% or more, and made zillions of dollars.

One day, someone in the credit card industry looked at the numbers (profits) generated by these cards and realized that they actually made more profit from fees, such as:

  • Annual fees
  • Late fees
  • Over-the-Limit fees

...than they did by the interest rates they charged!!!

Again, years ago, most credit card account holders paid off the account each month.  Then, someone got the bright idea that if an account got paid off, then there would not be little, if any, profit from interest rates and fees.

                                    What to do????

They came up with the idea to only charge a very small monthly minimum payment so that more and more people could charge their accounts to the limit and only have to pay 2% or so each month based on the balance.

Let's say you had an account with a $5,000 credit limit and so far, your balance is only $2,000.  $2,000 x 2% = $40, but you send in the $50.

Before I get into the details of how much this will cost you over time, let's talk about the really dangerous CREDIT CARD TRAP....

Have you ever thought (or done):

"Since I have a limit of $5,000 and I only owe $2,000 with a $50 a month payment, I'll charge another $1,000 and my payment will only go up $25 or so."

This is where most people start getting into real trouble.  Before you increase your debt, check out what your credit card company is really charging you:

OK, let's say you didn't increase the balance.  Next month, you get your bill and as you start trying to understand it (right!), you notice that there was an interest charge of $35!!! How can that be?

You also notice that the Annual Percentage Rate (APR) is 21%.  Although there are various methods different companies use to calculate the interest due, for simplicities sake:

        $2,000 balance x 21% = $420 (annual interest based on $2,000)

        For this month, you divide $420 by 12 (months) = $35

        Now you see the account summary and notice:

        Previous Balance                 $2,000

        Interest charge                    $    35

        Payment                             ($   50)

        New Balance                       $1,985

     That's right, your balance was only reduce by $15!   

Now, you don't have to be a genius to figure out that at that rate, you are going to be paying on that debt for a long, long time to pay off that credit card.

Think about that for a minute... 

When you finally pay off that debt (at the small minimum monthly payment), you will have paid at least 2 to 3 times as much as the original balance!

And, don't forget about those fees!

                         THERE IS A BETTER WAY!


Depending on several factors such as:

  • Your employment (self or W-2)
  • Income
  • Marital status
  • Health (disabled?)
  • Age (retired? would most likely qualify for one of the following programs:

Rather than get into each plan, I've attached links (above) to previous blogs or more information you can access for FREE.

Credit Cards are a very dangerous trap and should be avoided and/or managed at all costs!  Please proceed with caution!




Tags: credit card debt, debt settlement, debt management, credit cards, credit card debt help portland or, snowball plan

What to do if you receive a 1099-C after a Settlement?

If you have had a debt settled for less than the total balance, you may receive a 1099-C.  You may or may not have to pay any additional tax.

Get out of debtWhen you settle a debt for less than the full balance due, and this is for $600 or more, the creditor or debt collector may report this to the Internal Revenue Service.  I say "may report" because they don't always report a settled or "forgiven" debt. 

Over the past decade that we have been helping people get out of debt, it seems that in the last year or so, more and more creditors and/or debt collectors are reporting settled or forgiven debt.

I have to start out by stating that I am not a CPA or licensed professional tax consultant, so any advice here should only be used to help point you in the right direction.  If you do receive a 1099-C, please seek the help of a professional tax consultant!

So what should you do if you receive a 1099-C?

                             DON'T IGNORE IT!!!!

Let's say that you had a Credit Card that had a balance of $10,000 and because of circumstances beyond your control, you just couldn't make the minimum payments.

Most likely, this account was sent to a collection agency after the original creditor made numerous attempts, such as annoying and often harassing phone calls and many collection letters.

STOP Collection Calls Free Sample Letter

The debt collector may have sent you an offer to settle for less than the full amount due or perhaps you or a Debt Settlement Company were able to negotiate a good settlement.

Using our $10,000 example, let's say that the settlement was for $4,000.  The debt collector was willing to "forgive" (in IRS lingo) $6,000.  The debt collector reports this to the IRS in order to write that amount off as a loss and you are sent an IRS form 1099-C.

At first glance, it may look like you owe $6,000 of additional tax, but this is not so!

You will need to file the proper forms with your tax return to have the settled or forgiven amount EXCLUDED from being added back in as additional taxable income.

As usual, the IRS seems to have complicated the process, but in reality, it is not that difficult to file properly.

The basic and most important question that you must answer and prove to the IRS is:

"At the time of the settlement or forgiveness of the debt, were you insolvent?"

What is "insolvent"?

If, AT THE TIME OF THE SETTLEMENT, you had more debt than you had in assets, then you were insolvent. (Sounds terrible, but that's just their terminology.)

So, how do you find out or prove if you were insolvent or not?

It is really not difficult.  Take a piece of paper (or use your computer if you want) and one side list all of your assets, such as:


  • Net equity of your home (Current value less amount you owe = net equity)
  • Cash or money in the bank
  • Net DEPRECIATED value of things such as furniture, appliances, tools, etc.  remember, even though you paid $2,000 for that refrigerator a few years ago, today it probably would sell for only $200-$300!
  • Net value of your autos, boats, campers, etc.  Same thing, NET, DEPRECIATED VALUE!

Total all of these up.

On the other side of your sheet, list all of your DEBTS OR LIABILITIES, such as:

Since you've used the NET VALUE (Depreciated Value less Balance still due) on the ASSET SIDE, were probably talking about:

  • Credit cards
  • Store cards
  • Student loans
  • Medical Bills
  • Personal loans
  • Possibly Home Equity loan or 2nd you forgot to list before!

Add all of these up.

Subtract the total of all of your LIABILITIES (DEBTS) from your NET ASSETS. Which is greater?  If your Liabilities are greater than your Net Assets, you were insolvent at the time of settlement and therefore, the amount forgiven WILL NOT be included as taxable income.

The next part seems a little difficult, but it's not.

You are going to complete:

  • IRS Form 982
  • A copy of your ASSETS VS. LIABILITIES worksheet
  • A copy of the 1099-C

You are going include these along with your normal tax return.  By the way, don't be surprised if your tax preparer seems a little confused as to how to handle a 1099-C.  I've had clients pay tax that they didn't need to because the tax preparer didn't file the proper forms.

We have prepared a FREE 1099-C PACKET that you can download and use. 

It includes:

  • Instructions
  • Examples
  • IRS Forms

Get yours by clicking on the button below:


What happens if your Assets were greater than your Liabilities?

You are going to need the help of a qualified, tax consultant or preparer.  You still should be able to exclude a large percentage of the forgiven debt, but there may be other ramifications, so I advise you to get help.

Photo credit:










Tags: credit card debt, debt settlement, 1099-C, IRS Form 982, credit card debt relief oregon, credit card debt help portland or

Credit Card Debt...HELP!

If you are overwhelmed by too much credit card debt, we can help!

Many people find themselves drowning in credit card debt and other unsecured debts, but don't know what to do about it?

We get calls daily asking for advice from people who have too much credit card debt in Portland, Oregon (where our office is).

Maybe you find yourself in this situation and have considered:

  • Debt Management,Consolidation or Credit Counseling
  • Debt Settlement
  • Bankruptcy

There are many factors that should be considered before deciding on which program or debt solution would be appropriate for you:

Are you still working or have you retired?

Is you primary source of income from Retirement Sources?

  • Social Security
  • Pension
  • 401(K)

If unemployed, what are the realistic chances that you will find a job within the next 3 months or so and if so, will you be earning the same as before or less?

Let's discus the first option, DEBT MANAGEMENT.

Debt Management is the term used today can also be referred to as "Debt Consolidation" or "Credit Counseling".

In a Debt Management Program, you most likely will have several credit cards or other unsecured accounts and you are making the minimum payments, but the interest rates and fees are making it almost impossible to pay off these debts within 15-20 years!

In a Debt Management Program, you will get credit card debt help as you will have:


How will this affect your credit score?

Your credit score is deteremined by several factors. Here are a few:

  • How much debt to income you have (debt/income ratio).
  • How much debt you have taken on compared to the available credit you have.
  • Your payment history.
  • Types of credit accounts you have.

You must realize that having too much credit is usually the main reason your credit score is low.

Any program that helps ELIMINATE DEBT, will ultimately help improve your credit score!

If after a thorough FINANCIAL CONSULTATION, it is obvious that you cannot afford a Debt Management Program, then may qualify for a Debt Settlement Program.


In a Debt Settlement Program, you will have ONE MONTHLY PAYMENT that is designed to fit your budget.

It is usually much lower than what would be required of a Debt Management Program's payment.

In a Debt Settlement Program, your accounts WILL NOT be getting a monthly payment.

Most people who choose Debt Settlement over Debt Management, have had a severe financial hardship or have had accounts that have been charged off or are severely delinquent.

Debt collectors are calling constantly.

STOP Collection Calls Free Sample Letter

In a Debt Settlement Program, a trained debt negotiator will arranage a reduced payoff of that account.

Once settled, the company or creditor will report it to the credit reporting agencies as "paid as agreed" or "settled as agreed" or in some cases, "paid in full" or "settled in full".

Now your credit report will show a $0  balance and your credit will slowly improve as your debts are paid!

Finally, after examining your first two options, you may be forced to seek BANKRUPTCY for protection from your creditors.

There are basically two forms of BANKRUPTCY available to most consumers:

Chapter 7 or Chapter 13 bankruptcy

Before considering bankruptcy, you should consult a Bankruptcy Attorney.

Look for a local bankruptcy attorney who specializes in bankruptcy.  Many law firms try to be a "one stop fits all" firm and that is not for you!






Tags: credit card, credit card debt relief portland oregon, credit card debt relief oregon, credit card debt help portland or, credit card debt help