Pick Your Payment Poison

Ellen's husband is about to go on disability. He'll receive about $1,000 a month. She earns $32,000 a year. Should they stop paying the credit card bills in order to pay the IRS?

QUESTION: Ellen in Seattle says her husband is about to go on disability. He’ll receive about $1,000 a month. He won’t be able to work in his field. They owe $19,000 to the IRS, $30,000 in credit card debt, and $5,000 on a van loan. She earns $32,000 a year. Should they stop paying the credit card bills in order to pay the IRS?

ANSWER: You are doing this perfectly. You are taking care of the Four Walls, which are food, shelter and utilities, clothing and transportation. Keep the van payment current and put gas in it and everything as well. Keep your basic necessities of life going.

Then you get down to choosing between the IRS and credit cards. Pay the IRS. Let everything else go to collections if you have to, but pay the IRS before credit cards. Here’s why: They are more expensive and more powerful. They can just come and take stuff; the power they have under the law is ridiculous.

If you’ve got an installment program set up with them that is keeping them off of you, keep that current after you’ve taken care of your own household.

The third thing is that they are not bankruptable. In a worst-case scenario, they are not going away if you file bankruptcy, but the credit cards will go away. I’m not saying you’re bankrupt, but that also enters into the discussion of which thing you pay first. You pay the thing that is the most powerful, the most expensive and the thing that is not bankruptable, which moves the IRS to the top of the list.

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