Question: Need a little financial advice

CrimsonProf

Hall of Fame
Dec 30, 2006
5,716
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67
Birmingham, Alabama
So I need some financial advice.

A few years ago my wife and I fell on some tricky times due to an unsuccessful career change. We've managed to right the ship, but we've got a few collections out there we need to address.

My concerns are:

- If we take collections settlements, how does it affect our credit scores? (We're hoping to buy a home in the next two years)
- If we take the settlements, I know we have to file the remaining difference as income on taxes. How do I determine if I'm going to end up in a new tax bracket thanks to that "extra" income?


I can get more specific if I need to - this may not be clear enough.


Thanks!


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DzynKingRTR

TideFans Legend
Dec 17, 2003
28,595
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Vinings, ga., usa
I went thru this a few years ago. I was able to settle my collections, but it shows on my credit as “Paid in full”. You really have to talk to these people and get it sorted out. When you do settle, you ask “how will this show up on my credit report?” They should tell you if it will be on record as “paid in full” or “settled for less than the amount owed.” Once you are in debt collections the most damage is already done. Mine was really bad and 7 years later I am in good standing and my score has increased 200+ points and rising. I just got approved for an Amex card that I never would have gotten 7 years ago.
 

Jon

Hall of Fame
Feb 22, 2002
13,433
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Atlanta 'Burbs
I worked in collections a long time ago so I'll start with "get it in writing" we used to offer to settle and remove from credit, not sure how it is done now though I had a bill from comcast on an old address appear in collections recently and paid it and now it is simply gone so I imagine it can still be done.


My best other bits of advice are, don't make a small payment on something old. Credit works on "Date of last activity" if you throw 20$ at a 5 year old debt that will fall off after 7 years you just reset that 7 year clock. And, go to reddit.com/r/personalfinance and ask the same question. There are dozens of regulars there that can give you far better, far more current advice than me a former bill collector that failed accounting ;) and congrats on righting the ship, been there too
 

seebell

Hall of Fame
Mar 12, 2012
10,246
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Gurley, Al
So I need some financial advice.

A few years ago my wife and I fell on some tricky times due to an unsuccessful career change. We've managed to right the ship, but we've got a few collections out there we need to address.

My concerns are:

- If we take collections settlements, how does it affect our credit scores? (We're hoping to buy a home in the next two years)
- If we take the settlements, I know we have to file the remaining difference as income on taxes. How do I determine if I'm going to end up in a new tax bracket thanks to that "extra" income?


I can get more specific if I need to - this may not be clear enough.

Thanks!

Sent from my iPhone using Tapatalk
Add collection "income" to adjusted gross income on last years tax return. This, if everything else remains the same, will be your new taxable income.

Look up bracket here. Remember that taxes are not paid on gross income but income after all deductions, i.e. adjusted gross income.

https://taxfoundation.org/2017-tax-brackets/