debt options

I think you need to decide what's most important to you. Keeping an OK credit score or paying off these debts and having some breathing room I think we both know what your answer will be.

My suggestion is that you start with your highest interest card and stop paying it. Save the money that you would have paid plus the money you're saving on your mortgage and then after about 90 days, make a settlement offer. I would start at 25% and work your way up from there. After each settlement, you'd move on to the next one but would be able to save more money because you'd be using the savings from the mortgage payment plus what you were paying on the card you just settled plus what you're paying on the current card you're trying to settlem.

I would not include your credit union card in this process. Frankly, it's a low interest rate with a high limit, so I would just pay that one off after you've settled the others and keep it for emergencies. After these are all paid, you can start paying extra principal on your mortgage and saving some money. Your credit will start to rebound a couple of years after your settlements are over.

So, your first card is card 3. You owe $10,500 and should be able to save around $5400 in 90 days. You could likely settle that one for 50% right away.

Your next card is card 5 which has a pretty small balance. At 90 days, you'd have about $5650 (which is more than the total balance) so, if you can negotiate that one at 50ish%, you'd be ahead.

Next card would be Card 2, after 90 days, you'd have about $10K, which again is nearly 50%.

Final card is card 4. After 90 days you'd have around $8000, again around 50%.

Once that 4th card is paid off you can start paying a LOT extra on your credit union card and have it paid off in no time.

Hi, thanks OhioGal.
You plan sounds good however the $1500 / mo we cut off our mortgage is not liquid, the savings allowed us to survive and now handling our debt is our next step in rebuilding our financial state in this poor economy and job market. So, following your plan, starting with not paying card #3, after 90 days would give us a savings of $945 and then trying a settlement without any cash to settle with except $1000 and perhaps another $1000 could be found....but not $5400...

Then maybe it is time your wife went back to work even part evenings and weekends.

If they had to pay for child care, this would subtract from any earnings. Do you have an income tax refund coming? Have you looked into tapping your IRA? If you decide you need to sacrifice your credit score for paying off debts, I would suggest stopping all payments except to the credit union and save that money toward settlement.

Can you borrow funds from someone? Do you have a 401k where you work? Can you unload a second car?

I suggested working part time evenings and weekends when the spouse is at home to look after the kids.

OK, I didn't realize you were using that $1500 to pay your minimums on the cards. Here's another way to go about it and some hard questions to ask yourself.
[LIST=1]

Thanks for all your replies.

My wife is working as a part time nanny (3 hours, 3 days per week) where she is able to bring our kids. She makes about $162/week doing that ($648/mo). I also started working a part-time tech job on an as needed basis nights and weekends ($35/hr), work is not steady or guaranteed but I can expect anywhere from 1 to 5 work opportunities in a month taking home a range of $280-$1400 depending on opportunities. I also make an extra $100 / mo doing website updates for an old client.
Furthermore, I am also a partner at a small startup company that has been on the brink of great things but the economy has slowed us down over the past 3 years hindering my past goal of wiping out this debt with extra proceeds from profits, unfortunately our profits have not been too hot to throw a big check at this debt. I have contemplated entering the work force again to solidify a higher salary BUT then fear I may lose on the potential growth of this company and sell off my portion of company at a very low price. We need to REALLY make a more detailed budget and take a hard look at all the little monies that go out each month that can easily add up to a savings of $300-500 per month I am sure which can be thrown at our debt instead of eating-out a few times per month.

Regarding my IRA, in 2010 I took out $15k of it to help buy a mini-van for my wife and kids. I could withdraw more to settle some debt I suppose. Right now the balance is $32,000 and is in aggressive funds. I believe it made $5,000 over that past 6 months. So, I am now reluctant to lose out on more of that growth by taking from it to pay down debt. If I took $5,000 from it there is a good chance I could pay it back in 90 days from a quarterly bonus and negate the 10% penalty and income taxes on it.
In the end it looks like I would expect to pay half of the $50,000 worth of debt within 2 years based on the 90 day settlement process. So, I need to ask myself if $25,000 cash is worth it to have only $20,000 worth of credit card debt left which we could chip away at pretty fast after settling all other debt AND having our credit score ruined. How fast is it to restore score? Or do I roll the dice and continue paying the minimums hoping for big things to happen at my company and ultimately pay off the debt normally. Also, I read somewhere that in the settlement letter one can write to bank requesting that the record of the settlement NOT be posted on report, instead request that debt was paid off satisfactorily.

I am very leary of this whole settlement process and will it also hurt our means to gain credit from other banks in the future even if they agreed to not post 'account settled' on report? Looking for some assurance from other people in my similar situation whom have successfully negotiated settlements and did not hurt their families future of any future credit needs. What if we had to move due to my job or something and couldn't buy a house because of the settlements? There are a lot of 'what ifs' in my head which is why I am here reaching out to you all for guidance.

Thank you all for your feedback and advice.

What I've suggested above is a "strategic default." Settlement will obviously lower your credit score because you won't be paying as agreed on your credit cards. Generally, people like Citi, Amex, Discover, BofA, etc. won't agree to report anything other than the facts on your credit report, so there's that.

But what are we talking about here really? 4 cards that you'll get behind on and then pay off and be rid of within a year's time vs. nearly $80K in credit card debt that, if you continue to make minimum payments on will take you a lifetime to pay off.

There's no guarantee that your business will increase enough so that you could pay this off with a hoped-for windfall. There's no guarantee that your business won't fail. I mean, I really hope that doesn't happen to you but, if you're going to think about what-ifs, you need to think about that one too.

If you can settle these accounts, even at 50%, you'll save yourself nearly $30K. Not to mention what you'll save in interest by paying off the credit union card much faster.

Here's another what-if. You asked about the possibility of having to move and buy a house. What do you think will look better in the whole credit picture? Someone who got a little behind on a few credit cards and paid them off via settlement or someone who has $80K in credit card debt (maxed out or close) and can only make the minimum payment?

It's also my experience that, if you have a big enough down payment, the bank is a little more willing to take a risk on you even if your credit score is iffy. And, if you pay off those cards, you'll be able to sock money away for a down payment if that happens. If it doesn't, you can invest more in your IRA and also have that ever-important 6 months salary/emergency fund in your savings account so you won't have to rely on credit in the future.

I think tightening the belt and using the extra money you'll have by doing so is a good idea. Every little bit helps. And borrowing from your IRA again may be a really good way to get the settlement ball rolling. Especially if you will be able to pay it back before any penalties are assessed.

I feel like I'm starting to preach and that's not my intent. Basically, there are pros and cons to each option. There are what-ifs with each option. You and your wife need to sit down and decide which cons you can live with and which ones you wouldn't be able to accept. Whichever way you go, I hope you get out of debt soon and are able to ease this burden for your family.

Excellent advice, ohiogal.....

Thank you so much for that reality check OhioGal, you really put the pros and cons into perspective.
I will sit down with my wife and seriously consider these options. Let you know our talk goes and how/what we do to get this ball rolling into a debt free lifestyle.

What is the effect a settlement has on tax returns? Is the difference in settlement to debt considered taxable income?

If a you owe a debt and it is canceled / forgiven and the amount written off is $600 or more, you are supposed to receive a Form 1099-C, Cancellation of Debt. The amount of the canceled debt is to be claimed as income. You can avoid this if you you can prove insolvency.

Make a list of your assets (anything that you own outright that could be sold for cash) and determine their fair market value.

Make a list of your liabilities (anything you owe).

Create a financial statement by making a table that compares your assets with your liabilities.

If the total amount of your liabilities is greater than the fair market value of your assets at the time you received any form of debt cancellation or settlement, you are insolvent.

If you are insolvent, you are not required to report the amount on the 1099-C as income but should instead file IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, with your tax return. You could also send the IRS a detailed letter that includes your financial statement showing your insolvency.

Thanks OhioGal, this site and experts are great. I can not imagine the money you saved me alone by exploring our debt problem with a financial advisor or debt management company. I think we are going to take your advice and follow your plan of settling card #3 first using your approach and funds from sale of car or IRA. With that said, how do I deflect the anticipated calls from creditor looking for late payments knowing I am going to send a settlement letter offer after 90 days have past?

I wouldn't worry about dodging the calls. I would just answer and tell them you are experiencing a hardship and will pay as soon as you can. They'll likely try to pump your for more info but I would just stick to a short and simple answer and again tell them you will pay as soon as you can. Don't sign up for any hardship plans or send any "good faith" payments, etc. When you get to 90 days past due, start trying to negotiate. Best of luck to you and please do keep us informed on your progress.

So I waited till now (120+ days) to try and settle 1st with BoA and sent them a letter via email through our online account portal. They denied my offer $3000 overnight money order to clear up $12,289 of debt in response to my email. I then snail mailed the letter with a $4,000 offer to their DE office. Is this normal to be denied without a counter? IS sending the snail mail letter the right thing to do after an electronic denial of a lower offer?
We have a checking account with BoA with $$ in it for a family house rental, could they be denying me based on that liquidity right in front of them? Technically not our money at all, but we are managing the property (no money goes into our pockets).

Latest account numbers: (company,balance,rate,minimum)

AMEX
$21,302
9.99
$425

DCU
$20,113
6.75
$354

CHASE1
$14,645
7.99
$292

BofA
$12,289
15
$261

CHASE2
$3,249
11.24
$68

Total:
$71,598
MIN: $1400

You're going to find this hard to believe, but the credit card division at Bank of America does not have access to your checking account information. So, this is not the reason they denied your request to settle the account.

You have to "pull the trigger" at exactly the right moment to gain the most savings. You jumped the gun a bit. Be patient and wait, and you will achieve a good settlement in the end.

Best of luck to you!

Marie Megge

When did you send the snail mail to BOA? I had 7 cards to settle and down to 4 now, which includes 2 BOA accounts totalling about $16K. I have about $5K max for them and trying to figure out how to get there. We are at about 120 days now I believe.

Just settled a CapOne and have one more CapOne plus a small Citibank that I'm having trouble with. I'm getting so close I can taste victory...but these last ones are getting tough. I know I need patience!

But...all my deals have been worked out by phone after painstaking discussions. Just curious if the offer letters ever work.

Marie

gawe,

mind giving some details on the Cap one settlement? TIA

I sent the snail mail letter last Thursday so they should have it anyday. I offered $4k to settle. I have not discussed anything over the phone yet.
I do not believe they have a current number for us in the system as I do not recall any phone calls for us being late. They have sent 'past due' letters.

We just decided this past weekend, from advice from someone with experience, that we are going to stop payments on all cards to free up $1,400 per month to live. At this point my credit is going to be shot for one bad card why not put it in the dumper for all the debt. I will stop all payments and then wait for the letters and calls to come. I could probably in 120-180 days come up with all the money to work out payment settlement deals at $500-$1000 per month for X months for each card...It will be a matter of timing to make sure I can afford the settlements. I may need outside funding to work the deals but in the end we will be debt free and a huge burden will be lifted. I can't believe we have been spending $18,000 per year on minimum payments for the past 4 years at least and only took maybe $6,000 off principle (due to 1 year 0% payment plans I negotiated with cards in the past)...Wow that is like $72,000-$108,000 we could have saved if we never got into this credit mess. We now know how to live without credit which is a beautiful thing, I wish back then we were not so optimisatic that big money "will come" to pay off the credit card balances...These card companies were upping our spending limits at every turn, all cards had max limits of $25-$35k - total of say $150,000 of open credit for a couple not even making nearly that much per year...shame on them but shame on us too for being so stupid to keep spending on those lines and thinking the cards would be paid off 'later' -- but those were different times.

Pros/Cons to doing this method of stopping payments on all cards? Also, the credit union card, where we do our daily banking, was closed maybe 2 years ago due to credit report score lowering when we were doing the mortgage modification- So, I think stopping payment on that card is a must as well.

I talked with Bank of America and they offered a $5,000 settlement for the $12,289 debt. I said I will think it over. Should I take it or hold out for better offer?

From what ive read here and on other boards, BoA should settle lower than that, much lower, maybe 3-4k.

Hopefully others with BoA experience will chime in.

BofA often settles at 15% few days before chargeoff. There is rarely a reason to settle with them for over 20%. Settlement negotiations are done over the phone not in writing. If you get a yes, then ask to get it in writing well before the payment is scheduled to post. You can split the settlement into 3 payments.

I was able to settle both BofA accounts at 20% (total was $17k), but it took much longer than 90 days. I stopped paying one 12/4 and settled 7/19. The other was a business card which goes through a different department. Our last payment was 11/1 and we just made an agreement this week (8/17).
The phone staff is actually nice. Make sure you get offers in writing, and be patient. Good luck!

So, a week ago I received a letter stating the account was going to collection in 7 days if I did not call. So I called and I offered $3000 to settle and they did not budge, I then said I would offer $4000 over 4 months ($1000 per month). Total balance was 12,610 so not the 20% I was hoping but not bad - better than the $5k they offered before

Just keep going...I helped my husband settle multiple accounts similar to yours Jh and near the end after 120 days, I could not wait and I believe we settled BOA for about 25%. We settled Citi and Cap one too! So just keep going. But make sure they spell it out in writing that you settled the account not that you went to collections. After one year, my husband's credit score is $685 transunion and 670 equifax. It really plummets at first, but slowly rebuilds particularly if you have a mortgage payment showing up! Good luck and keep posting. We live debt free now! ;)

debtor in CA

Hmmm Cap One, more details pleeease, going nowhere fast with them. Thanks.

I just got off the phone with AMEX (1st call I actually returned since they started leaving messages). I am about 3 months over due with balance just over $21000. I told them I could not pay and was contemplating bankruptcy but willing to explore settlement option as I have accss to some money through family and retirement funds. They transferred me to the settlement dept and I told them I could possibly come up with $6000 as a lump sum payment, she said AMEX never goes below 75% of debt and finally after much talk back and forth of my situation, the final number was $16,000 settlement - obviously I declined and they tried to get a monthly pmt out of me which I said I could not make any payment. I ended the call and said I would talk to my financial advisor to explore options. What should I do? They seem to be stern that they never settle for under 75%. PLEASE HELP!

Credit Counseling is not the way to go in my opinion. Those companies are funded by your actual creditors and wouldn't do much to help your situation. In a program like that you are still paying back the full principle plus a reduced rate of interest, at the expense of your credit score.

Bankruptcy should always be a last resort, as it affects you for the next 7-10 of your life after filing. It is also a public record that is visible to anybody.

ADVERTISING IS AGAINST TOS!!!

AMEX does sometimes take this approach. It may be advisable to hire a company to handle the negotiations for you. A reputable debt service will have preexisting relationships with the settlement departments of the more common creditors. They deal with these companies on a regular basis which usually leads to better settlements. Sometimes it is better to have an attorney on your side if you are not experienced in dealing with these creditors.

I am very new to this and just wanted to thank you and wish you luck the rest of the way toward your debt-free goal.

Considering different options for myself right now as well, not behind on any payments yet but have over-extended myself beyond my ability to pay.

Couple of things from reading your posts and from many of the knowledgable forum members:
1.) Great job thus far and thanks for sharing.

2.) Seems you want to negoitiate settlement by mail, from my limited reading and also from what you have kind of said, I would conclude forget that ; the creditors and collection folks will only deal via phone when it comes to offers back and forth and the like.

3.) I am not sure I would have disclosed in conversation to AMEX that you have potential access to family funds andor retirement money to settle. Not really sure the best way to tell them you have potential access to settlement cash but if I were a creditor and someone said this I would question that and in my mind think this person is unlikely to actually declare BK and if we threaten law suit will settle on our terms not theirs (personal opinion only)

Please keep us updated, it seems like their is a fine line between waiting to the very last minute to get the best possible settlement offer vs. waiting one extra day and have a law firm right on your back and the offers are either higher or no offers and you are in front of a judge.
With your income I assume an actual lawsuit would likely not end well for you.

Jhardy25,

Can you please tell how your DCU credit card debt is going, did you start offering settlement with them? Are they agreeing for settlement after 90 days?

Appreciate your reply.

Thanks

I'm with SAOPlady on this one.. i know it's hard but I think if your spouse worked part-time you could get rid of this debt much quicker.. great replies here btw

you could tell them over the phone that you do not wish to receive phone calls and want to be contacted by mail only (unfortunately C&D may not work if it's inhouse debt collector). One thing to watch out for is that it's not a fake debt collector, ask how they want you to make the payments, if it's Western Union you should call the cops because it's a scam

Quote:

Your right letters do not help any. Actual phone calls are the only way to deal with Settlement departments of the big creditors. DCU offered a $16,500 settlement, final offer, only a 4,000 difference from balance. This being my financial institution I do not want to screw that up and was reluctant from the start to default on this account. Now I am debating on what to do.
I have Chase, Amex and DCU on my back. Roughly have $25+k in an IRA I can withdraw from on Jan 1. I am thinking of using that money to settle Chase and Amex, and get current with DCU and pay it back in time. Regarding the Amex settlement, they asked how I would get the funds to settle if I can't make a payment? So, I feel I had to disclose my source of funds for settlement. During the first call I expected them to accept my offer of $10k. Regarding DCU, I also offered my final offer of $10,000 but they did not budge from their only offer. Lastly, Amex would allow a 90 day payoff as settlement agreement - so that is some relief, hoping they accept my repeat offer of $10,000. If Chase accepts a $4k payoff, I'd be left with 2 cards, DCU and Chase#2 with total owed around $24k.

Jhardy,

For Dcu, how many days late/pastdue are you now? Did you try making a counter offer of like 5k, which is like 25% of your total debt with dcu? You need to stick with the amount you can offer, and only max 5% or so more for negotiation room and try.

It could depend on how many days you are late with Dcu. Is it it dcu cinternal collections calling you? Also make sure your checking/savings acct with dcu has no funds.

Goodluck

Unfortunately, I have multiple accounts with DCU and have been a member with them for 8+ years. Also, all of my bill pay and direct deposit etc is through them so I can not have zero funds in there, they see that I currently have around 7k of checking and 4k in a charity account we run. They told me this is the lowest they can go and I am 3.5 months over due. They said if I can't settle for that amount or bring my account current my membership would be in jeopardy and further action would be necessary. The reason for the 7k in checking is that I told them a partial of that is being used to finish out a settlement with BofA.

Jhardy,.. may be you could consider moving your checking acct/deposits from dcu to another nearby bank. I think only then,dcu might consider a settlement with you.

UPDATE:
paid off all cards and completely debt free (except mortgage). All cards except DCU and AMEX were settled. I paid DCU and AMEX in full.
I did have a windfall of selling my business and taking my cut. Used some funds to wipe out debt and it feels great. A huge relief.

Latest happening is I just got a letter from Bank of America stating they will forgive my home equity loan of $128,000. I am in a modified mortgage that was approved some 2 years ago and then all of a sudden this letter came in. It stated that it will be erased if I do not have issues within 30 days. Sounds great, right, BUT the tax implications (added income tax) could be impossible for anyone to afford - say 33% on $128,000 is $42,240. Does anyone have any information around this forgiveness program?