If I Die, What Happens To My Wife And My Debts?

Question: “I have credit debt, but my wife isn’t a user on the card. What happens to my debt when I die? Will she be responsible?” I feel like that is more conversational and still fits the KW.

— Bill in Oklahoma

Howard Dvorkin answers…

First, I hope this is a general question and not something serious. If it is serious, I hope you recover, and I applaud you for thinking about others at such a time.

Second, the answer to your question depends on where you live, and on some other details as well. Let’s break it down.

Where you live

Nine out of 50 states are community property states. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin consider all the property and debt acquired in marriage to belong to both partners. That’s true even if only one spouse made money or lost money.

Fortunately, Bill, you live in Oklahoma. So that’s one less problem you must face.

What debts you have

I assume when you say “credit debt,” you’re referring only to credit cards and nothing else. It’s an important distinction because some debts are different after death. For instance, a surviving wife might be responsible for her deceased husband’s private student loans — even if they don’t live in one of those community property states.

How you set up that debt

If your spouse has co-signed any loan, they’re responsible for that debt. That goes for anyone, not just married couples. You mention that your wife isn’t a “user” of your credit card, but the more important question: Is it a joint card? Even if she doesn’t use it, if her name is on the account, she’s on the hook for the balance.

In general

If this all sounds sort of vague, it’s intentional. When it comes to death and debt, there are loopholes and exceptions all over the place. Generally speaking, however, a surviving spouse isn’t obligated to pay the debts of the deceased spouse.

What to do NOW

Whenever I’m asked questions like this (and that’s often), I’m always glad when it’s not related to a serious illness. That means there’s still time to take steps now before we all face the inevitable. While planning for our own deaths is certainly not fun, it’s definitely important.

[For further information, check out What Happens to Your Debt When You Die?]

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

Can The IRS Really Tax My Forgiven Debts?

Question: I had a rough patch in my life and succeeded in getting some credit card debt “written off.” I thought this meant I didn’t have to pay anything.

But now I got a letter from the IRS saying I have to pay income tax! On the forgiven debt! How is DEBT considered to be INCOME? If I had income, I wouldn’t be in debt! SMH!

This is ridiculous! Can you explain this to me? Is it even legit? Or am I being scammed? If it’s true, what can I do? I’m nearly broke as it is, and I was actually thinking about bankruptcy. Would that help?

– Moses in California

— Nida in Pennsylvania

Jacob Dayan answers…

That is a great question, and I completely understand your frustration. I know it can seem almost like a cruel joke being played on you. But unfortunately this is not a scam. When credit card debt is forgiven, it’s rarely a simple process. Here’s a quick video primer…

Hi, I’m Jacob Dayan, the CEO and Co-founder of Community Tax. That is a great question, the answer to your question is relatively straightforward, but as always, I have to caution you that everyone’s tax circumstance is different. As such, it’s often advisable to speak with a tax professional prior to making a decision related to this. Before I break down the answer, let’s review some basics about collections and taxes.

The short answer is that a credit card company will write off a debtor’s balance after months if not years of collection efforts. The credit card company will issue the debtor a 1099 cancellation of debt. What this means, is that the debtor – you – are then required to pay back income tax on the amount that was canceled or forgiven.

The IRS essentially treats any unpaid, forgiven debt as income. And you definitely don’t want to ignore the IRS. If you want to know more about what happens if you do, read the report Understanding the IRS Collections Process available on Debt.com. There is, however, an exception to the requirement of paying taxes on any canceled credit card debt.

The taxpayer will not be responsible for paying taxes if they can prove they are insolvent at, or before, the cancellation of debt. Insolvent means that you have no assets or that your financial situation is basically upside down. Credit card companies will generally wait three years before issuing a 1099 cancellation of debt. Why? Because they must show a consistent attempt to collect the unpaid balance. Credit card companies are not in the litigation business. So, they tend to sell past due accounts to law firms that will collect on the outstanding debt.

If a credit card company fails to collect after roughly six months, they may engage a collections law firm to take over collections. The law firm will try to work out payments of the debt prior to filing suit in a civil court. After three years of attempting to collect, the credit card company will finally write off the debt and issue a 1099 cancellation of debt. I hope this helped clear things up. If you have any other questions, feel free to give myself or my team a call, or visit Debt.com

Now let’s dig into Moses’ particulars.

Yes, debts can be taxable

Under IRS guidelines, canceled debt counts as taxable income. In ordinary circumstances, receiving a loan is not considered income, and paying it back is not a deduction. But when a lender cancels the debt, the IRS treats the amount of canceled debt as if it is indeed taxable income.

There are exceptions

This is one of the harshest provisions in the tax code because it punishes folks who are already struggling. But there may be help! There are some instances when this “canceled debt income” can be excluded from income, and you can escape tax on it.

For example, if the canceled credit card debt was from a bankruptcy, or if you can prove to the IRS that you owed more total debt than the value of your assets (home, car, retirement accounts, etc.) at the time of the forgiveness, you may be able to avoid tax on the canceled debt income.

Resolution programs

The IRS also has resolution programs specifically designed for those with financial difficulties — such as a payment plan, “Currently Not Collectible” hardship status, or a settlement if you qualify. If you would like more information, we have tax professionals on staff who can conduct an investigation into your tax situation and determine if you might qualify for some relief.

Jacob Dayan is co-founder of Community Tax LLC, a full-service tax company helping customers nationwide with tax resolution, tax preparation, bookkeeping, and accounting.

For help with your tax debt, check out Debt.com’s Tax Debt Solutions.

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Can a Judge Forgive Your Debt? And Can a Judge Send You To Jail?

Question: A friend of mine is disabled. Her only income is her Social Security disability benefits. She got into a lot of credit card debt, and one of the credit cards got a judgement against her in court.

A friend told her that because of her low income, the court might just maybe forgive her debt. Is this true?

And what would happen if other credit cards brought her to court? Can she go to jail because she can’t afford to pay the debt back? God, I hope not. Thank you for your help. We appreciate your kindness and your consideration with this question. Thank you so very very much.

— Dori in New Hampshire

Howard Dvorkin answers…

Getting out of debt isn’t as hard as you think. However, understanding how to get out of debt may be the hardest part. Debt management is a program that can cut your total credit card payments by 30 or even 50 percent by drastically reducing the interest rates. And when you’re done, you emerge with no debt and a great credit score.

With debt settlement, you pay pennies on the dollar of what you actually owe. But your credit score can take a major hit, because you’re actually paying less than what you owe. Debt forgiveness means you might pay nothing on your debt, but good look getting a loan in the future.  How do you decide which is best for you? Let Debt.com help you figure it out. Call now for a free debt analysis.

Let’s start at the end, because that last question is the easiest to answer: No, you can’t go to jail for unpaid debts. As long as you’re not defrauding your creditors or doing something illegal, trust Debt.com when it says: “No matter what those debt collectors threatened you with, the police won’t be beating down your door.”

If you click that link, you’ll learn that the United States hasn’t imprisoned debtors since the 19th century. It’s no mystery, however, where that fear comes from: Unscrupulous debt collectors either imply it or come right out and threaten it. In 2013, the last year Debt.com could find statistics, the federal government recorded more than 16,000 complaints that “collectors falsely threatened to arrest the consumer or seize their property for refusal of payment.”

With that out of the way, let’s talk about your friend’s debts.

Yes, it’s possible your friend could have her debt wiped clean. It’s called debt forgiveness, and it’s a powerful weapon. However, like all powerful weapons, it can injure more than just the target you aim it at. That’s why Debt.com has a report called, A Realist’s Guide to Credit Card Debt Forgiveness.

I urge you and your friend to read it, because debt forgiveness has gotten a bad name lately. Why? Because bad people are advertising that they can clear all your debts with forgiveness — and don’t worry, there’s absolutely no downside! It’s amazing and only we know how to do it!

Of course, you’ll end up paying these middlemen a hefty fee for a shoddy service, and you might even end up worse than before you contacted them. Think of it this way: Would you pay hundreds of dollars to someone promising a guaranteed weight-loss plan that lets you eat as many cupcakes and potato chips as you want, with absolutely no downside?

If you want a serious diet plan, you should consult your doctor first. If you want a serious debt plan, you also need to consult a professional. I recommend calling a certified credit counselor at a nonprofit credit counseling agency, where your friend can receive a free debt analysis. From there, all the options can be explored, from a debt management plan to bankruptcy.

If you don’t know which nonprofit agency to contact, Debt.com can introduce you to a reputable one. Bottom line, Dori: Your friend doesn’t have to go through it alone.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

Ready to seek real credit card debt relief? Debt.com can set you up with certified credit counselors who know how to help.

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Can The IRS Come After My Husband For Tax Related Identity Theft Due to His Father?

Question: My husband’s father owned a convenient store that he put under my husband’s name. His father didn’t pay taxes for a year — and  now the IRS is going after my husband, since the store is under his name!

He didn’t acquire any profits, as it was his father’s store. My husband was in Texas at the time his father had this issue in Illinois. We are dealing with a $40,000 fee. Is there a way to get out of this situation?

This happened before we got married. Can the IRS come after my paychecks?

— Nida in Pennsylvania

Jacob Dayan answers…

This question is very difficult to answer with the information provided, but I’ll do my best to try and put your mind at ease.

First off, in the interest of being completely transparent, this is a very serious situation and should be handled with extreme urgency!

Hi, I’m Jacob Dayan, CEO, and co-founder of Community Tax and this is Taxing Questions. Here’s a specific situation that happens all too often: a parent sells or gives a business to a child, but that business hasn’t paid taxes in a long time. The child didn’t know about it, so they didn’t budget for it. Now the IRS comes calling with a five-figure tax bill. Is that child on the hook for the sins of the parent?

As for most things’ taxes, the answer is – maybe. In fact, unless a parent deceived their child, the answer is probably. What bad things can a parent do? Well, for starters, if the child’s information was used without their knowledge or consent, that’s identity theft.

I get into the details on Debt.com. But remember this, whether you start, buy, or were even handed the business spend some time considering the tax implications or you better be prepared to spend a lot of money later.

Now, that being said…

If he didn’t know his dad committed tax identity theft

If your husband’s information was used without his knowledge or consent, then you should consider that identity theft — and treat it like a crime. Here’s what your husband should do:

  • File a police report locally.
  • Contact the IRS and let them know this was caused by identity theft.
  • Your husband will need to file an Identity Theft Affidavit with the IRS, explaining all the details he knows to be true regarding the situation.
  • In the Identity Theft Affidavit, he should include the police report and any notices about the issue.

While it won’t be a short process, odds are you can resolve this situation eventually.

If he did know

What if your husband consented to the business being owned under his name and run by your father-in-law? Then, unfortunately, he can be held responsible for any tax responsibilities for the business.

Since Texas is a community property state, this also means that you can be collectible for any of your husband’s tax debts, even though you are not liable for them. If both you and your husband are collectible for the debt, then there are options available to protect your paycheck. But depending on what stage of collections the IRS is in, time may be of the essence.

What to do now

I highly recommend seeking representation by a licensed tax practitioner. This situation is not uncommon for our professionals, and we would be happy to have a preliminary discussion and investigate your situation. Either way, we wish you and your husband the best of luck in resolving this matter!

Jacob Dayan is co-founder of Community Tax LLC, a full-service tax company helping customers nationwide with tax resolution, tax preparation, bookkeeping, and accounting.

Does Closing a Credit Card Account Hurt Your Credit Score?

Question: I have transferred all my credit card debt to a single no-interest card for 18 months. I have five other credit cards, and now all the other credit card companies are increasing the limits on the cards I just paid off. Which is better for my credit score: Cancel them? Hold onto them? Or charge a little and pay them off each month? I really don’t want to use them.

— Kim in Pennsylvania

Howard Dvorkin answers…

Here’s the short, cryptic answer: The best thing for your credit score might not be the best thing for you.

Money in a minute: What if your credit score was a pie?

If you picture your credit score in a pie, it’s divided into five slices. But each slide is not the same size.  The largest – a third of the entire size of the pie – is called payment history. That means, do you pay your bills on time? The next biggest slice is just another a third, it’s called credit utilization. That means how much of your available credit have you spent. As you can see, that’s more than two-thirds of the pie.  Three other slices are really small.

Length of credit history is only 15 percent. And at 10 percent each are credit mix and new credit. What’s this prove? Focus most on the two biggest slices and your credit score will be easy as pie.

Now the long answer…

How a credit score works

You credit score is based on five factors. One of those is called “length of credit history,” and it comprises 15 percent of your score.

If those five still-open credit cards have been in your possession for years, then they’re actually boosting your credit score. Here’s the problem, though: You need to keep using them for that 15 percent to keep kicking in.

That means you need to make small charges every once in a while — and then pay them off in full. How often? Once a month to be safe, once a quarter on the outside.

Of course, if this poses too much temptation to once again run up your balances, the safe bet is to close those cards. After all, the biggest chunk of your credit score is called “payment history,” and at 35 percent, if you’re late on even a few payments, it’ll swamp that 15 percent you’re benefiting from.

Need help with your credit card debt? Debt.com can put you in touch with the credit card debt solutions you need.

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The second-biggest chunk of your credit score — at 30 percent — is called credit utilization. That’s the fancy way of saying, “How much you owe compared to how much you can borrow.” In other words, if you have $10,000 of available credit on five credit cards, and you’re almost maxed on them, your credit score will suffer mightily.

So as you can see, 65 percent of your credit score is determined by paying your bills on time, and keeping your balances low. That’s why it’s so hard to tell you if closing five mostly inactive credit cards is good or bad for you.

There’s one other factor of your credit score I even hesitate to mention, because it’s the most vague and one of the smallest slivers of the pie. It’s called credit mix, and it represents 10 percent of your score. In plain English, this means you have a variety of different credit lines.

Why is this important to lenders? It proves to them that you can pay back all different kinds of debt. In the case of these five credit cards, closing them would reduce the diversity of the debt you’re holding. So that’s another ding on the credit score.

If you’ve soldiered on through this long explanation, then you might see the wisdom in this advice…

  • Completely pay off the no-interest card within 18 months (or face sky-high interest rates).
  • Keep that card and 1-2 of the oldest cards you have.
  • Make small charges to each, and pay them off in full each month.
  • Close the other cards and don’t look back.

Within a few months, you should see your credit score creep up. Over many more months, if you keep paying off your cards each month, you’ll see it jump. Why? Because you’ll have a history of low balances paid on time, you’ll have a few very old cards, and you’ll be considered an excellent customer by lenders. You can’t beat that.

Want to know more? Check out Debt.com’s report, How to Improve Your Credit Score Step-by-Step.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

Can You Inherit Your Parents’ Medical Debt?

Question: My sister is in dialysis three times a week. Her insurance apparently doesn’t pay for all of it. She says she pays about $25 a month toward the bill. She says she’ll never get it paid off. Someone told her not to worry about it. When she passes, will her son be responsible for the debt?

— Nina in Virginia

Gerri Detweiler answers…

It must be incredibly stressful for your sister to continue incurring medical debt she can’t pay. Unfortunately, it’s not an uncommon situation. Medical debt is one of the leading causes of bankruptcy — and more than half of all collection accounts on credit reports are due to medical bills.

If your parents are drowning in medical debt and are considering a life preserver, let Debt.com connect you with the right credit counseling professionals to help them.

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Telling her to just ignore the bills may not be the best advice, however. A little over half of U.S. states have “filial responsibility” laws that can be used to hold children responsible for their parents’ necessary bills, including medical debt. These laws are not frequently enforced in the type of situation you described, but there have been some high profile cases recently where creditors have pursued adult children for their parent’s debt — especially by nursing homes and similar facilities.

Even if filial responsibility laws don’t come into play, another possibility is that when she passes away, the dialysis provider or a collection agency may try to collect from her estate, which is all of the assets that your sister may own. Therefore, if she has equity in a home or other assets, those may have to go toward paying your sister’s debts, rather than toward any inheritance she hoped to leave for her son.

If your sister is concerned her son will be saddled with debt he can’t afford after she dies, she may want to consult with a consumer bankruptcy attorney to learn more about her rights and responsibilities.

By the way, it’s important for her son to know that if there is no filial responsibility law in the state where his mother resides, his mother’s creditors and debt collectors are not entitled to look to him to pay what she owes after her death. In other words, even if they contact him to demand payment, he is not legally obligated to give them a penny so long as he did not incur any of the debt with his mother, or guarantee payment in writing.

I owe $25,000 and I’m Completely Overwhelmed by Debt. Is There Any Hope For Me?

Question: According to my latest credit report, I’m $25,000 in debt. So, now I’m feeling completely overwhelmed. 

I’d been making regular payments on my car loan (which I am upside down on) for years. Never missing a payment until just a few months ago. I changed jobs and locations, and the new job barely paid the rent. So, I fell behind on my credit card payments as well as the car payment.

For years, I have missed payments on various accounts, and my credit score is now down to the 500s. I cannot seem to make enough money to keep up with my everyday bills, much less the additional expenses. I live alone and have tapped out my family and friends with loans. 

Now, having said that, my next admission is so scary, I am paralyzed with fear to even tell anyone. Oh God, here it goes: I owe back taxes, of which I have not filed in at least five years. Why? Because I know I will owe and cannot afford to pay. I know, I know, it is a stupid reason. I also do not want to go to jail because I just don’t look good in orange. Little humor there. 

I want to clear up my debt. As of this month, I have a state job, as well as a part time job. Thought about bankruptcy, not sure it is the answer for me. Where do I start?  I can’t lose my car to the repo-man. 

— Jessella in New York

Howard Dvorkin answers…

I usually don’t publish letters this long, simply because they’re so daunting (and emotionally draining) for Debt.com readers to get through. I’m making an exception because Jessella’s story is important, as is her exasperated tone.

Sadly, Jessella’s story is typical. You might see yourself facing some of these same types of stubborn debts. So let’s break down Jessella’s situation, and perhaps help others who feel overwhelmed by debt problems that seem insurmountable…

Back taxes

Because you fear back taxes above all your other debts — as well you should — I asked my friend Don Markland to reassure you. Markland is the chief revenue officer for Tax Defense Network, which helps more than 10,000 customers a year solve their tax debt problems with the IRS.

“You don’t go to jail for taxes unless you evade or refuse to pay,” Markland says. “So Jessella should be fine.”

Of course, you still need to pay your taxes. I recommend you read Back Taxes: End Your Challenges with Unpaid Tax Debt. You have options, ranging from installment agreements to something called “offer in compromise.” You may even be able to qualify for Currently Not Collectible if your budget is truly overwhelmed by debt, just like you’re feeling. This will stop any IRS collection actions until your financial situation improves.

Who can help: While you can tackle these options yourself, firms like Markham’s are experts at finding the best option quickly and painlessly.

Fortunately, you can’t go to jail for not paying your credit cards, but it’s still a costly problem. With interest rates hovering at an average of 15 percent and penalties and fees getting tacked on monthly, you fall further behind literally every day. Read What Happens If I Stop Paying My Credit Cards? if you don’t believe me.

Here, too, you have options. One of the most powerful is a debt management program. it can reduce your credit card payments by up to 30 to 50 percent and get rid of penalties and late fees.

Who can help: You can’t sign up for a DMP, as it’s called, by yourself. You need to consult a credit counseling agency first.


This word scares many people, as well it should. It’s a big step, but it exists for a reason. While it comes with some hurdles, it’s a legitimate way to get back on your feet. However, it won’t solve all your problems. Your credit score will take a big hit. Then there’s this…

“Bankruptcy won’t help her for the taxes, because she’s never filed,” Markland says. “So she needs to be fully informed about that.”

He adds: “If the reason she can’t pay taxes is her other bills, bankruptcy may be the answer to clear up her other bills, then she can work on her tax issues.”

Who can help: Before thinking about bankruptcy, you need pre-bankruptcy credit counseling. From there, an expert will determine the best path for you.

So what now?

You’ll notice I listed the experts who can help you, but not how to reach each of them. Thankfully, you can do all that in one phone call to Debt.com. We match you with reputable experts like Markland, who can help you. Call 1-800-810-0989 for a free debt analysis.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

If The United States Can Go Into Debt And Be OK, Why Can’t I?

Question: I’m 25 years old and am struggling to pay off nearly $30,000 in student loans from my undergrad and grad degrees. I’m a nurse practitioner, so I understand many mysteries of the human body — but I don’t understand finance.

For instance, why are Debt.com and other websites constantly pushing us to pay off our debts when our federal government is $19 trillion in debt? America seems to be humming along just fine, and it seems like we’ve always had this debt, at least since I was born. If the government can have trillions in debt and not suffer, why can’t I have a few thousand?
— Denise in Missouri

Howard Dvorkin CPA answers…

This is an excellent question, Denise. Sadly, you’re not going to like the answer: You’re not the federal government. That sounds obvious, but it means everything.

You have a salary that can fluctuate or even end if you get laid off. The federal government never runs out of money, because it makes you pay taxes. The federal government can give itself a raise simply by forcing you to pay more taxes.

The federal government can sell bonds to finance its debts. You can’t. The federal government doesn’t retire. You (hopefully) will someday. Then there’s this…

If the government can owe trillions of dollars, why can’t I be in debt too?

The United States is in deep debt. Our federal government owes nearly $20 trillion. As a CPA and financial counselor, I’ve said for a long time that our country needs to stick to a budget. Don’t think for one minute because the government doesn’t stick to a budget that it’s an excuse for you to overspend.

Let’s be clear: the federal government is still better off than many of its citizens. Let’s look at the numbers:

  • The federal government has an annual budget of $4 trillion
  • It owes nearly $20 trillion in total
  • That debt represents a little less than a quarter of its total annual income

Now how does this compare to you? Now imagine, if your annual salary was $50,000 and you owed $200,000 on your mortgage, car and credit card, that puts you in the same financial situation as the federal government.

If you want to be in better shape than the federal government, Debt.com can show you how to get back into the black. Visit us today, and don’t forget to sign up for our newsletters.

Yes, you heard that right. The federal government, with all its gigantic debt, is still better off than many Americans.

Last year, the U.S. Census Bureau reported the median household income in this country was just over $59,000. Meanwhile, the Federal Reserve pegged household debt at just over $137,000 — which covers mortgages, auto loans, student loans, and unpaid credit card balances.

Now, that’s still a better ratio of total debt to annual income than the federal government has. However, as I said, the federal government has more advantages and guarantees that a single household doesn’t.

There is one advantage debt-suffering individuals have over our bloated federal government: They can avail themselves of credit counseling. You can call Debt.com and receive a free debt analysis from a certified counselor at a nonprofit credit counseling agency. Over the phone, you can figure out a strategy to get those debts off your back and live financially free. If you do that, you’re better than the government.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

I Work Two Jobs, Yet I’m Drowning in Credit Card Debt. Why?

Question: I owe about $80,000 in credit card debt across something like 22 accounts. I make slightly above the minimum payment on each, but I’m probably going to be missing payments.

Between a full-time and part-time job, I make about $35K-$40K a year. I have a wife who makes a good salary, but she owes $1,000 a month in student loans. She’s in a debt management program, but I don’t know if that’s the best solution for me.

Our combined income a month (after taxes) is probably about $6,500. But my minimum credit card payments are probably above $2,000 a month, When you add the student loans, maintenance ($500), and all other expenses, we’re lucky to even make a dollar

I’ve been in contact with debt management and debt settlement companies, who have given me multiple offers. There are positives and negatives for both. I’ve also contacted a bankruptcy attorney, but my assets outweigh our debt due to my wife and I owning an apartment.

We currently have a negative balance in our account and after we get paid next week, we might still have a negative balance. I’m still not sure what is the best solution for me. Help!

— Michael in New York

Howard Dvorkin answers…

If you tell many people that your household income is $78,000 a year, they won’t imagine you’re mired in debt — especially when the median household income in this country is just over $59,000.

Sadly, what you earn has very little to do with how much debt you have. I’ve counseled millionaires who owed more than they could pay. Some have declared bankruptcy.

In your case, Michael, two debts are hurting you most. They happen to be the two most pernicious: credit card and student loans. Lucky for you, most of the country is suffering right along with you. That means it’s a big enough problem that the government and private sector have come up with big solutions…

Michael writes to me:

I have three incomes, no kids, but I have a lot of debt. I’ve learned a lot in my quarter of a century as a CPA and financial counselor. Maybe the biggest lesson is this, going into debt has almost nothing to do with how much money you make.

I’ve met millionaires who are actually paupers because they’re living larger but borrowing bigger. In Michael’s case, he’s not a millionaire but he makes well above the median income for U.S. households.

Yet, two things are dragging his marriage down: credit cards for him and student loans for his wife. They make $6,500 a month. Yet, they might have a negative balance this upcoming month.

Since he and his wife both have good incomes, no children, and no other real major expenses the first thing he should do is speak to a professional who can help him with a plan to pay down his debt. Why? Because he has options right now.

Thankfully there are programs specifically designed for credit cards and student loans. A debt management program can reduce monthly credit card payments by 30 or even 50 percent. Some of his debt may be eligible and better suited for a debt settlement program.

And the federal government has a slew of programs to reduce monthly student loan payments. How do you find help? It’s easy as visiting Debt.com. And don’t forget to sign up for our newsletters for more great advice.

What are your best debt relief options?

1. Credit counseling

This first step is the easiest. It’s also free. You simply call a nonprofit credit counseling agency and speak with a certified credit counselor. You’ll get a free debt analysis that’s so comprehensive, you’ll probably be surprised to learn exactly where all your money goes.

This is important, Michael, because you’re not even sure how many credit cards you have (“something like”) and how much debt you’re carrying (“about”). Your predicament requires specifics to solve.

Read more: What Is Credit Counseling And Why Do I Need It?

2. Debt management program

The best way to get rid of credit card debt is known as a DMP. It can reduce your monthly payments by 30 to 50 percent and freeze all your late fees.

Sound too good to be true? It’s not. Your credit card issuers will forgo much of their profits to get paid back the principle you owe them.

There are restrictions, however. For instance, you must cut up your credit cards — because you can’t ring up new charges if you owe a bunch of old ones. It can also take months or years to complete a DMP. Still, once you come out the other side, you’re financially free. Almost every DMP client I’ve known has said it’s worth it.

Read more: Debt Management Program Pros and Cons

 3. Student loans

The federal government is worried about student loans. Why? Because the total student loan debt in this country is approaching $1.5 trillion. That’s more than all the credit card debt out there — by almost a third.

There’s no DMP for student loans. Instead, there is a slew of federal programs that can cut your monthly payments, and in some cases, forgive the debt. What’s the catch? It’s the government, and the programs come with complicated names like “income-based repayment plan” and “income-contingent repayment plan.”

Knowing which plan is right for you requires some studying, but Debt.com can introduce you to some experts who can help.

Read more: Federal Student Loan Repayment Plans

4. Debt settlement

Finally, you might have the option to pay less than you owe. That’s called debt settlement, but I only recommend it after you’ve exhausted the other possibilities above.

Why? Because debt settlement severely damages your credit score, it’s a complicated process, and there are unscrupulous people out there who will try to take advantage of you.

Debt settlement is a legitimate and powerful option, but it’s also a serious one. So you should consult an expert first. Debt.com can help you.

Read more: Debt Settlement: What is It and How It Works

Bottom line, Michael: You’re not alone with this problem, and you’re not alone with the solution.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

Which Is Better If I Make Good Money: Debt Settlement Or Debt Management?

Question: It took me a minute, but I figured out the difference between debt SETTLEMENT and debt MANAGEMENT. Now I’m not sure which one to use to get rid of everything I owe. 

Here’s the deal: I owe around $45,000 on a bunch of credit cards, which I ran up a couple years ago when I was between jobs. Now I make six figures, but I’m not making much of dent on those cards. The interest rates range from 18 to 22 percent, which is killing me.

I’ve seen examples of debt settlement with amounts as high as I owe, but I don’t think the people who are $45,000 in debt make as much as me. Also, I want to buy a house in the next couple years, since I got this good salary and the job seems really stable. So I don’t want to settle my debt and then get a crappy mortgage rate.

How do I decide this? What are the factors to consider?

— Paul in Wyoming

Steve Rhode answers…

The differences between debt settlement, debt relief, and debt management are some of the most common questions posed to Debt.com experts. In fact, Debt.com’s chairman Howard Dvorkin has answered this same question several times…

It’s unfortunate these very different things sound so similar, but in Paul’s case, the question is a little different. It boils down to this: “How much do you consider income when it comes to getting rid of debt?”

It matters a lot. Debt settlement is intended for dire circumstances. Let me tell you a sad story…

[Get Out of Debt expert Steve Rhodes]

Hi, I’m Steve Rhodes, the Get Out of Debt Guy.

There is a time for debt settlement, and here is an example of when it worked amazingly well. I once had a client. He had $40,000 of debt that he couldn’t pay. He called the bank but the bank wouldn’t give him any help.

If he had gone for the offer that the bank came up with, he would have cleaned out his 401 (k) and had no retirement. He was able to settle that debt for half of what the banks wanted. If you struggle to make payments and are not good with finances like most of us, then having somebody else manage those finances for you and deal with the banks can be a real benefit.

You want to talk to a professional who knows what they’re doing, who can develop a plan that fits within your budget. Who allows you to continue to save, move toward retirement, and deal with your debt in a healthy, productive, stress-free way.

In this instance, a man endured a personal tragedy that demolished his finances. Debt settlement was literally the only path to preserving his financial future.

Paul’s situation is very different. Even though he owes slightly more than the man I mentioned above, he might not need such a powerful tool as debt settlement. Let’s break it down.


It’s important to not limit your options when dealing with debt. A solution you may not initially consider, like bankruptcy, may be a much better fit depending on your overall financial situation. It may be less expensive to put in place, make more sense with your financial goals, and help you build a larger retirement savings plan. This is why it is always good to talk to an expert.

Debt settlement

As you can learn in Debt.com’s report Debt Relief Programs Pros and Cons, “There will be a 7-year negative remark on your credit report for every debt settled.”

That’s a big drawback for Paul since he wants to buy a house within a couple of years. As that Debt.com report explains, “Settled debts look bad to lenders, so it can make it harder to get approved for loans and new lines of credit.”

So that’s a last resort.

Debt management

A debt management program is a much better bet for Paul. You can read more at Debt Management Program Pros and Cons. The “cons” are mostly short-term inconveniences for long-term benefits, which suits Paul just fine. He seems willing to sacrifice now to prosper later.

A DMP, as it’s called, will cut his monthly payments by 30 to 50 percent, and since he makes a good living, he’ll make quicker progress paying off what he owes.

Regardless of his options — and there are others — the best place to start is with a free debt analysis from a certified credit counselor who works at a nonprofit agency. Debt.com can hook up Paul and anyone else, regardless of their salary.

Steve Rhode is known as the Get Out of Debt Guy and has appeared on FOX, CNN, ABC, NBC, and MSNBC giving money advice.