Oh Susannah, oh don’t you pay for me

I recently learned that a $1,300 credit-card debt I thought I had paid off years ago is still lingering. I have been given the option (with only 24 hours to decide) of settling for $700 with the collections agency, or having the debt turned over as unreported income to the IRS.

I can do a payment plan with the collections agency, and have the $700 settlement offer paid off in a month.

However, I am wondering if having the debt turned over to the IRS as unreported income would actually be the cheapest option. I would pay taxes on that $1,300, which would be less than the $700 offer to settle. I could pay those taxes in full immediately.

Can you shed light on the best option for me? Thanks for your time.

Susannah

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Hi Susannah,

I can’t give tax advice, but I definitely agree with your reasoning.  The IRS bill would likely be cheaper than $700.  Additionaly, paying an old collection [in the absence of a pay for delete] will probably reduce your credit score.

Thanks for the questions and hope this helps.

Paul

(singing)

Oh, Susannah,
Oh, don’t you pay for me,
I come from Alabama,
With the collection on my knee.