Settling Your Credit Card Debts – Part 3

Understand credit card debt tax consequences and red flags indicating illegitimate debt-settling companies.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, says slow down and consider how you can get out of the red without spending a whole lot of green.

Tax consequences
Depending on your financial condition, the money you save by using debt settlement companies can be considered taxable income. Credit card companies and others may report debt settlements to the IRS, and the agency may consider it income, unless it finds you are “insolvent.” You are insolvent when your total debts are more than the fair market value of your total assets. It can be complicated to determine whether someone is insolvent. If you’re not sure whether you qualify for this exception, talk to a tax professional.

Red flags
Avoid doing business with any company that promises to settle your debt if the company:

  • charges any fees before it settles your debts
  • touts a “new government program” to bail out personal credit card debt
  • guarantees it can make your unsecured debt go away
  • tells you to stop communicating with your creditors
  • tells you it can stop all debt collection calls and lawsuits
  • guarantees that your unsecured debts can be paid off for just pennies on the dollar

For more information
The FTC has free materials about dealing with credit card debt at:

For more information about dealing with mortgage debt, visit “Your Home” on the FTC website.

To file a complaint or get free information on consumer issues, visit the FTC website or call toll-free 1-877-FTC-HELP (1-877-382-4357); TTY:  1-866-653-4261.

Watch a video, “How to File a Complaint,” to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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