I’ve been hearing the commercials for years. "Settle your credit card debt for less than you owe, consolidate your debt and save, " etc, etc. I’ve got over 15 grand in debt, accrued a little bit at a time over a lot of years. I pay very little interest on most of it, but about 5 grand suddenly is getting slammed with big interest.
So it is really possible to consolidate this debt for less than the actual amount? Thanks in advance.
You can do this yourself without making the call. You do have to call the CC companies and explain to them that you cannot keep up with your payments. Generally, if you ask, they can lower your interest rates or your minimum payment. If you are really behind and have to cancel a card, sometimes they will settle with you for less than the full balance. (I had to do it once with Discover.) The representative that you speak with over the phone can also usually strike fees off your account if you have been generally good with your payments. Then what you do is take as much as you can afford and pay it on the card with the highest interest rate and pay the minimum on the others. When the first card is paid off, cancel it and start on the next card. You will be doing about the same thing as the debt consolidation places, except you will be doing it on your own.
If you do not have the discipline to follow the above plan, do some research and find a reliable debt consolidation agency and give them a call.
SSG Schwartz
It can be done but be aware, if you settle your debt for less it goes on your credit report as an I-9, which is one step above bankruptcy.
So to simplify a bit, suppose you owe $20,000 in debt and the credit card company is nice and says "we’ll settle for 30¢ on the dollar. So you pay them $6,000 and your accounts are marked paid in full.
On your credit report this is reported as a charge off of $12,000 against you. And this stays on your report for 7 years.
As I said this is one step above bankruptcy, so you may be better off just declaring bankruptcy and not paying anything back. (Chapter 7 if you don’t own anything).
Since after a charge off you’re only one step better than a bankruptcy (Which can stay on up to 10 years) any future lenders aren’t gonna think much of you anyway.
If you live in a state like Texas which doesn’t allow wage attachment, you may be better off simply not paying anything and not declaring bankruptcy. Assuming you own nothing you’re judgement proof and in 7 years it falls off your report.
So depending on your situation and state, you need to look at your options.
Thanks for the replies folks. I don’t have to declare bankruptcy or anything. I just wanted to know what the truth was behind the offers. And thanks to Markxxx, now I know.
A lot of this seems a bit distorted to me. I know my evidence is anecdotal, but it is what it is. I don’t think those credit outfits on TV are a good idea. They can’t do anything that you can’t do for yourself. They can, however, charge you a fee for making phone calls that you yourself could be making. There is, however, a credit counseling service affiliated with United Way that does not charge a fee and actually tries to help you.
That said, I have had several credit card accounts settled for less than the amount owed. They were reported as paid/settled on my credit report. Most of these happened about eight years ago, with the last settled around July of 2001. In August of 2001, I was able to get a $130,000 FHA mortgage. (This was the motive for getting all of the old accounts settled.) Two years later, I refinanced the mortgage at a better rate, cashed some equity out for home improvement, and removed FHA’s involvement in my loan. We have also been able to get cell phones, cars, credit cards, etc. with few problems. All of our accounts are in excellent standing today.
Texas does not allow wage attachment (do any states?). In fact, it is illegal for even threatening they will attach your wages or take your house.
One caveat: forgiven loans is taxable income that will be reported to the IRS. You must record any amounts that are written off. This may affect the amount of income tax you owe come April.
I just helped my daughter with this. She has a valid excuse, she was diagnosed with cancer and is going through chemo. Her idiot boss decided to cut her hours to “help” her through this. I have found it’s a lot easier to negotiate a payoff if the account is current. Once it has gone into arrears, they don’t really want to settle as easy. Of the three I was able to get payoff settlements, two stated she will receive 1099’s and will have to pay taxes on this settlement. The third didn’t make this claim but I wouldn’t be surprised if they do. She only had a little over $8,000 in debt and was able to pay them off for a bit over $3000.
Just anecdotal: I had some debt that was over 4 years that was hurting my credit. I wrote them letters offering ~30% to settle and stipulating that they remove the negative entry from my report. They can’t write fast enough accepting the offer.
One piece of advice: I would write the companies instead of calling them. Your letter will find its way to a person who can make a decision and you won’t waste time with a phone jockey trying to muscle more money out of you.
Last Friday one of the networks (ABC?) did a segment on one of the companies that advertise. They said NO. No assistance. Some additional expenses.
One technique I ran across once went like this: Rather than paying off the highest interest rate debt first, pay off the smallest debt while paying the minimum on the others. Once that debt is paid, then take what you were paying on the first debt and combine that with what you are paying on the second highest debt. When that is paid, then apply the amount from the those debts to the third smallest debt, and so on. Eventually, you are paying the final largest debt with the money you previously had been using for all your previous debts. It seems counter intuitive, but it is actually quite efficient. This is basically what you get from those adverts that claim to help you “pay off your debts with the money you already have.”
This method give you positive feed back, for some people making it easier to keep going. (Look honey, we paid one of them off!!)
SSG Schwartz’s method results in less money total being paid back (getting rid of high % rate loans first), but may not give you the obvious milemarkers (Whee, only 2 bills left/month) along the way.
Having helped my elderly mom get through some serious credit problems, there are a few tips I can offer.
NEVER close a credit account if you have lots of debt even if you’re not carrying a balance on it. Your credit score takes a hit when you do that. Why? Because your overall available credit is reduced. Your FICO score is based on a ratio of available credit vs. outstanding debt. Once this percentage reaches 85%, your credit score plummets and your interest rates will rise and your payment terms may change.
If your debt is primarily credit card and revolving credit debt, you’re solvent and don’t want to put a bankruptcy on your record, sort your balances from lowest to highest. Pay the minimum on all your cards except the lowest balance and slam all your remaining funds on that one bill each month until it’s paid off. Rinse and repeat with the next lowest balance. Once you are down to just a couple high balance cards, you can pay off chunks at a time and hopefully be out of debt within a couple years. This was my solution when I got into credit trouble several years ago because my financial situation was unstable and I didn’t want to risk my home.
If you have equity available in a home and you’re reasonably solvent, consider taking an equity loan to pay off your high-interest credit cards. Paying a second-mortgage at 6.5% (or even lower these days) is a hell of a lot better than paying 18% to 29.9% interest on credit cards. You’ll end up paying back lots more than you will with a mortgage.
Thanks again for all the suggestions. I’m going to try Drum God’s and jtgain’s method. What specifically did you do, Drum God, to get the companies to settle? jtgain, do whom did you address your letter and what specifically did you say.
Thanks for your help, folks.
I saw this site linked on SDMB
Eye opening reading, with full tutorials/scripts on how to deal with collections people.