Reduced payoff for a debt. Getting offers in the mail.
My spouse and I are receiving Reduced Payoff letters from one particular loan company. We have been receiving these letters for the past few years and not taken the offer. As we look toward our financial future (within three years) there will be a drastic change in income where we may foresee a decrease in net income. We have not been delinquent in paying bills or credit cards, we have a good start on emergency savings (eight months of expenses), and money put away in retirement and investments.
Both of our credit reports are positive and we both have over 700+ credit scores. If we accept the reduced payoff we would be saving over $1500. If we continue with what we are currently paying this particular loan will be paid off within two and a half years. My questions are 1) Why would a loan company offer it's customers, that are not at risk of being delinquent, a reduced payoff for a debt? 2) With our current situation would it be wise to accept the offer?
Why and when to take advantage of reduced pay off offers?
—ASB
That is a curious situation. Reduced payoff is synonymous with settling debt. Debt settlement does not typically happen unless an account is in a delinquent status. I have some questions about the situation.
Who is the creditor? Was the account ever considered delinquent in the past?
The only reason I can think of where a creditor is willing to offer a reduced payoff to account holders, and would proactively reach out to account holders making current payments, is if they lender is light on money and is attempting to boost liquidity in one form or another. Is this a furniture company, or a signature loan of some sort?
It may be a simple error in the account file that is generating these auto letters.
Have you called and spoke with anyone about the letters? There is likely a number for you to call on these letters that says “Call us in order to take advantage of this reduced payoff offer”. If this is a phishing type scam in order to get other financial information from you, you could just dial the creditor using other contact information not found on the letter you got in the mail. You should also be concerned about how the account would be reflected on your credit report (if this is a legitimate offer).
If you learn something odd about the payoff letter please come back to this page and post updates in the comment section below.
Congratulations with your household financial planning. The background information you gave is where every household should try to be. Especially in this economy.
bob says
I have delinquent account with one of the credit card company, They are threatening me that they will send my case to local Attorney. I called my CC company and trying to settle with 50% of the amount I owed. they are asking 80%. or will send to attorney. Question is: Can I wait until it goes to Law firm and deal with them for a 50% settlement amount?. Will the law firm give us a chance to settle with them out of the court for 50%? total amount is 12K .
Michael Bovee says
How many months late are you? Is this a credit union or small local bank?
This is my 6th month. I also behind my other 4 cards and got 30% settlement from 0ne of them. My score went down all the way to 500.
It’s a mid size credit union.
Without the name of the bank I am less insightful. Generally speaking, small banks and credit unions are really tough to settle with for any significant savings. Check out this article for more about banks and lenders that can be tough to settle with.
Hi, my husband is being sued by American express credit card for $23,000.00. They put us in high interest rate for several years due to a late payment. We are paying 300 a month for interest.
He is 70 yrs old, had a full brain surgery, and has 4 blood clots in legs, a new knee and diabetes.
I tried to offer a settlement with the credit card, they said they don’t settle. We are on social security and a pension from his job. What can I do to stop this law suit or get their attorney to settle for lower amount. I cannot pay. we still have a huge mortgage till we are 80 yrs old Help Please.
How much can you come up with to fund a settlement? I rarely see AMEX settle for much lower than half in these situations.
Have you looked into how bankruptcy would help wipe out this, and other debts?
There is a provision in the IRS code that applies to forgiveness of debt when exceeding 600.00.
A reduced payoff deal on a debt would result in an amount being “forgiven”. This is treated as income.
For some light reading on forgiven/settled debt see: https://consumerrecoverynetwork.com/debt-forgiveness-taxes-settled-credit-card
I got the same thing…very fishy. Why would you have to pay taxes on money you have saved… we would be saving 15,000 if we took this payoff. How is this right?
If the offer is legitimate and you have everything documented, saving 1500 is appealing. You appear to be in the position to take advantage of the savings without causing any issues in your finances.
Get everything documented including payment receipt and processing.
As far as the taxes go, check with a tax pro. Generally speaking, you will be taxed at your normal rate for the bracket you are in.
The creditor is SLM Financial. This particular lender was used when we decided to add siding to our modest home. We have never been delinquent with the account since we set up automatic bill payments through our bank. I did call the customer service number and asked as to why we have been sent these letters. The representative stated that customers within a certain loan amount were being offered the letter because this particular loan will be discontinued (still curious to me). When I asked her about how this will be reported on our credit reports, she stated that it would be marked “Paid in Full”. Of course there will also be a 1099-C reported to the IRS for the amount saved. So we will pay taxes on the savings should we take the offer. That will be my next step in deciding whether or not to take this offer, how much will our tax liability be. Thank you for your insight. ASB