Credit Card Settlement
I have a Chase/Visa/United Airlines credit card that I owe $35,000 on at 19% interest. I make the minimum payment each month, on time. I called Chase Card Services to inquire about a settlement and the person I spoke with said they may consider a 10% to 20% reduction as a settlement. They sent me a settlement agreement letter by mail that did not include a settlement number but rather a long list of what happens when you agree to a settlement arrangement. Terry, do you advise doing the settlement as I plan to take a loan out at 5% from one of my inherited IRA’s. I’m 66 years old and the credit card interest is too much each month. Thank you!
Terry Says
Wait, it is not worth ruining your credit for a 10% reduction in your debt. And a lot depends on your current income, because a withdrawal from that IRA could trigger not only income taxes (and maybe a higher bracket) but increased Medicare premiums. So you need to do some planning.
But if you have that $35,000 — plus about 20% more to pay for the taxes — so over $40,000 — this would be the time to withdraw and pay down the debt. If the additional $40,000 in income will put you in the higher medicare bracket (your current income plus this — see this IRMAA chart — then take half out this year to pay down the debt and the other half next January. Be sure to withhold income taxes from the withdrawal.
There is no way you’ll earn 19% in the IRA. But you are certainly digging a deep hole by paying 19% interest if you can only afford the minimum monthly payment. Doing that could take 25 years to pay it off.
Please write back if I made wrong assumptions. Or you can get personalized advice by contacting the National Foundation for Credit Counseling at 800-388-2227.
