Non-Profit Debt Forgiveness Tax Consequences

Choosing to use your education and skills to serve in impoverished areas of the country or with a non-profit organization can bring many intangible benefits as well as eligibility for student loan forgiveness. Participation in government loan forgiveness programs can alleviate the tax liability you might otherwise incur for having debt forgiven. As of 2011, under normal circumstances, you must claim any forgiven debt over $600 as taxable income on your federal return.

Medical Service Jobs

As a doctor or registered nurse you can dedicate a portion of your time practicing medicine focusing on public health interest groups, serving in poverty-stricken areas or working for non-profit health-care organizations and earn forgiveness for government student loan debt. The U.S. Department of Health and Human Services offers student loan forgiveness programs through the National Health Service Corps and the Nursing Education Loan Repayment Program. As of 2011, the U.S. National Institutes of Health's NIH Loan Repayment Programs can forgive as much as $35,000 of your eligible government medical student loan debt. The IRS does not consider government student loan debt forgiven through such programs as taxable income.

International Non-Profit Organizations

Volunteering with an international non-profit organization, including the Peace Corps and Volunteers in Service to America, comes with a variety of benefits, including participation in government loan forgiveness programs. For example, as a volunteer with the Peace Corps you can earn a cancellation of your eligible federal student loans, including Stafford, Perkins and federal consolidation loans, at 15 percent per year of service up to 70 percent. Unlike traditional debt forgiveness, you do not have to claim debt forgiven through non-profit work as income on your federal tax return.

Teaching Jobs

If you're an elementary or secondary school teacher serving a low-income school district, you may qualify for debt forgiveness under the National Defense Education Act. This law grants you forgiveness on your federal Perkins loan up to 15 percent for your first and second years teaching in a low-income environment. This increases to 20 percent in your third and fourth year and to 30 percent forgiveness in your fifth year teaching. Forgiveness under this law does not require you to claim the forgiven debt as income on your federal return.

Lawyers Serving the Public

If you're a lawyer choosing to serve the public interest with a non-profit legal aid corporation, you can have a large portion of federal student aid forgiven through programs offered through Equal Justice Works. This organization was formerly known as the National Association for Public Interest Law. The American Bar Association also maintains a list of student loan forgiveness programs on the organization's website. As with other government programs, the IRS will not consider government student loan debt forgiven in this manner as taxable income.

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Tips on Interest Rates

Interest rates indicate the cost of borrowing money. When you borrow, lenders charge interest on lent funds because they forgo the opportunity to invest the money and risk the possibility that you will not pay the debt. Interest can be very expensive, especially if a lender perceives you as a risky borrower. Avoiding and reducing the interest you owe on debts is one of the keys to building wealth.

Credit Card Interest

Credit card debt usually carries high interest rates which can make it difficult to pay back if you accrue a large balance. Credit card companies require minimum monthly payments on card balances, but they are often set so low that it takes years to pay off balances in full. The longer you carry a credit card balance, the more interest accrues and the more total money you have to spend on interest. Pay off credit card balances in full each month to avoid paying any interest on spending.

Prioritize Debts

The average person is likely to have several different debts such as credit card debt, auto loans, student loans and a mortgage. The interest rates on each debt you have will probably be different. Paying off the debt with the highest interest rate as quickly as possible will help you avoid spending more money on interest than necessary. You should, however, always at least make the minimum payments on debts, since missing a payment can hurt your credit score.

Build a Good Credit Score

A credit score is a number that encapsulates the risk you pose to borrowers. If you have a high credit score, lenders will be more willing to give you loans, and the loans you receive will likely have lower interest rates. A good credit score can amount to hundreds or thousands of dollars in savings on large loans like mortgages and auto loans. Paying your debts on time, keeping low credit card balances and establishing a long credit history can help boost your credit score.

Consider Refinancing if Interest Rates Fall

Interest rates can go up or down over time. If interest rates have fallen significantly since you took out a loan, refinancing may enable you to reduce the amount of interest you owe. When you refinance, you allow a new lender to buy out your current loan and offer you a new loan with different terms. Refinancing home mortgages is common; a half a percent reduction of the interest rate on a mortgage could result in thousands of dollars in savings over the life of the loan.

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How to Dispute a Credit Card Department Letter

A letter from your credit card company is usually an attempt to collect a debt. Your account may be seriously delinquent, and your card company may be on the verge of closing the account, listing it as charged off and selling it to a collections agency.

If you want to dispute that you owe the debt you'll have to wait until it has been charged off. Under the terms of The Fair Debt Collections Practices Act the debt is considered valid -- meaning you owe it -- as long as the account is held by the original creditor. Circumstances change once the account is picked up by a debt collector, and you'll be able to dispute it then.

Instructions

1

Review your credit card statement to determine how delinquent you are. After six months, the card companies generally sell accounts to collection agencies. If you are less than six months behind, write the card company asking for hardship status. Hardship status could result in the card company dramatically lowering your minimum monthly payment to as little as 1 percent of the balance for up to a year. Interest fees would be lowered as well, with a goal of giving you a chance to rebuild your finances following a hardship such as long-term unemployment or serious illness. Send the letter and wait for a response. Or if you are determined to dispute the debt, wait until it has been charged off and you have been contacted by a debt collector.

2

Write a letter to the debt collector challenging the validity of the debt. This must be done within 30 days of first being contacted by the debt collector to preserve your rights under The Fair Debt Collection Practices Act. After 30 days, the debt will be considered valid and you will have waived your right to dispute it. Use your letter to force the debt collector to prove that he has a legal right to collect from you, and that the amount he says you owe is accurate. Do this by asking the debt collector to send you a copy of your final statement from the original creditor. Send your letter by certified mail so that you will receive proof of delivery.

3

Read the response from the debt collector. You should assume that the debt is valid if the final statement and amount owed appears to be correct. If the statement appears incorrect, follow up with another dispute letter demanding additional documentation. By law, the debt collector must suspend all collection activity until the company provides proof that it has a right to collection from you.

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If You Can't Pay Your Medical Bills

Illness is often unexpected and when it strikes, it can leave you with expensive medical bills. If you are uninsured or are experiencing financial difficulties, you could find yourself in a situation where you are unable to pay them in addition to your other responsibilities. While ignoring medical bills is not an option, there are ways to properly handle your inability to pay.

Make Contact

Put some money toward the amount that you owe. This will show willingness on your part to pay what you can, even if it is only a small portion of the bill. By showing that you are willing to work with the medical office, there is a greater chance they will be more inclined to work with you.

Pay What You Can

Put some money toward the amount that you owe. This will show a willingness on your part to pay what you can, even if it is only a small portion of the bill. By showing that you are willing to work with the medical office, there is a greater chance that they will be more inclined to work with you.

Pay in Installments

Ask if it is possible to pay your bill in installments. Some medical practices will arrange for you to make payments of a predetermined amount monthly. If you are able to arrange a payment plan, set your payments at an amount that you can afford while taking your monthly budget into account. Larger facilities, such as hospitals, may allow you to set up automatic payments through your bank account.

Apply for Medicaid

Under certain circumstances, you may be eligible for Medicaid. Medicaid is generally three months retroactive and it may help with paying a portion of any bills owed prior to being approved. Contact your areas Medicaid office as eligibility guidelines vary by state.

Look to Other Outside Sources for Assistance

Seek outside assistance for paying your bill. Depending on the size of your bill, ask your family for a loan or seek financial assistance from charitable organizations, such as your place of worship. Check for regional non-profit programs that offer financial assistance or patient advocacy groups. If your bill is for a hospital, ask if they have any charitable assistance programs that you may be eligible to apply for.

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How Long Does it Take for Your Credit to Clear After Debts Owed?

Accumulating debt can have deep negative implications to your credit report. Having too much debt can lower your credit score. If you have outstanding debts on which you are behind, you can expect that information to stay on your report for up to seven years, according to the Fair Credit Reporting Act.

Seven Years

The Fair Credit Reporting Act outlines how long negative items on your credit report can be kept -- and therefore used against you. From the time you become delinquent, which is usually 180 days after last payment received, that info will stay for seven years. Other items also qualify to stay on your record for seven years, including civil suits and judgments, collection records and records of late payments.

Bankruptcy

If your debts are bad enough to require bankruptcy, consider the implications of your choice. Having a bankruptcy on your file is a significant red flag to credit bureaus and this information will stay on your record for 10 years. If you file for Chapter 13 (reorganization of assets), the credit bureau can take this off after seven years, but are not under any obligation.

Impacts

The higher your debt level is, the worse your credit score will be. If your credit report list your available credit at being, say, 60 percent or 70 percent consumed, your score will be affected. It is recommended to keep your debt level to no more than 30 percent. So, for example, if your total available credit is $10,000, try to keep your debt to no more than $3,000. This factor makes up 30 percent of your credit score. So once you clear off your debts, you are on the road to repairing your credit report.

Repairing

If you have cleared your debts owed but still have a number of years to go until that negative information is cleared off, work hard to input as much positive information into your report as possible. For example, paying your bills on time accounts for 35 percent of your credit score. So combined with keeping your debts low, you can work to improve your report, thus improving your score in a few years, allowing you to become a more preferred customer to lenders and credit card companies.

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What to Say to Credit Card Companies to Get Your Interest Rate Reduced

Consumers with high credit card balances and interest rates certainly pay a significant amount of monthly interest. However, they can save hundreds or thousands of dollars by requesting an interest rate reduction, according to Bankrate financial columnist Lucy Lazarony. More money is applied to the principal if the rate gets lowered. Lazarony explains that it helps to know what to say when asking credit card companies for a reduction.

Preparation

BCS Alliance recommends writing a script for each credit card account, customizing them with specifics for each card. For example, refer to the length of time the account has been open for older cards. Include the perfect history on accounts that have never had a delinquent payment, and note that a particular card's interest rate is not competitive, if most other banks have lower rates.

Identification

Card holders should know what to say to identify the person who can grant interest rate reduction requests. The Motley Fool financial website advises using the customer service phone number printed on the card, bank website or account statement. Select the correct options to reach a live person and ask the agent, "Do you have the authority to grant interest rate reductions?" If not, ask to be connected to the right person. Otherwise, launch into the request.

History

Tell the customer service agent about the account's positive history, the BCS Alliance recommends. Credit card companies usually want to retain good customers, so long-time account holders have an advantage in interest rate negotiation. For example, say, "I have had this account for five years and have never made a late payment. I hope you want to retain a good customer like me." Emphasize other positives, too, like, "I have never gone over the credit limit" or "I always pay more than the minimum."

Considerations

Banks sometimes turn down rate reduction requests, even for good customers. Motley Fool advises calling and asking again in a few months. Say the same things you did in your earlier rate reduction requests. It may take time, or speaking with several different agents, to finally get a lower interest rate. BCS Alliance recommends asking for a supervisor if an agent refuses to lower the rate. Say, "Can I please speak to someone with more authority?"

Alternative

People with good credit who cannot get rate reductions can often get better terms with new credit cards, according to Howard Strong, author of the financial guide, "What Every Credit Card User Needs to Know." Their current card issuers may even grant a rate reduction when faced with account closure. Ask to speak to an agent who can close the account and explain the reason, such as, "One of your competitors is giving me a card with a rate three points lower than yours." The agent may give a better offer to retain your account.

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Should I Marry a Girl with Credit Card Debt?

Marrying someone with credit card debt is a decision that should be taken seriously.

You Can Keep Your Finances Separate

When you get married, your credit remains your own. Provided that you do not have your name put on any of her credit cards or previous loans, you will be able to maintain a high credit score throughout your marriage. The key is to keep your finances separate until she is able to pay back her credit card debt. If you have concerns about inheriting her debt in the case of death or divorce, consult a lawyer about a prenuptial agreement that will keep you from becoming liable.

Financial Problems Affect Other Aspects

According to a 2010 article published in the Wall Street Journal, debt is the leading cause of marital conflict during the first several years of marriage. While you may be able to work around her past debt, many people with bad spending habits bring these same habits into marriage. Buying a home or taking out other loans that require both of you to sign may force you into higher interest rates than a couple without debt would have.

Bottom Line

The decision to marry in spite of credit card debt is one that should not be taken lightly. However, if handled right, her financial situation need not prevent you from having a long, happy marriage.

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