Consolidation vs Settlement revisited
Date: Fri, 02/17/2006 - 08:55
6 months ago, my wife and I were thinking of buying a home and were pre-qualified for $150,000 mortgage with no money down (about $4000 in closing costs) at a very competative rate. Instead of buying a home right away, we decided to wait for awhile to pay down some debt and save up for a higher down payment. We were able to live rent free in my brother's appartment during this time.
Since then, the credit card companies have raised our minimum payments from 2% to 4%, which killed our debt/income ratio, which was borderline for the mortgage when the payments were 2%. The credit card companies also raised my rates from 8-12% to 25 - 30%, even though we didn't miss any payments. The excuse was our high debt/income ratio, which was brought on by the increased minimum payments.
We owe over $60,000 in revolving credit, and the minimum payments are about $1600 a month. I am bringing home about $2100 a month, and my wife is about to quit her job so she can get her CNA training. I see three choices at this point.
1. Bankrupcy - Stays on record for 7 or more years.
2. Settlement - Will kill credit score at least until all debts are paid and maybe longer.
3. Consolidation - Will hurt credit score until debts are paid.
I have ruled out bankruptcy because of the long term negative effects on my credit.
I was considering cosolidation, but it will take 6 years or longer to pay off our debts, and credit is adversely affect while debt is being paid, and possibly longer. I read somewhere that this type of program is almost as bad as chapter 13 bankrupcy, because it shows you needed 3rd party help to pay off the debt.
I am leaning towards using a debt settlement/negotiation company (Lawgistix) which guarantees a 40% settlement of the principle at the time you enter the program. As part of the settlement, the debts will be listed on the credit report as paid. Credit cards that are not included in the program would be paid on a timely basis, which will help with credit payment history. They have lawyers in my state that will keep me from being harassed by creditors and they offer free credit clean up at the end of the program. I can be debt free in 3 to 3 1/2 years. According to the man I spoke with at the company (Gary Wright), late payments only remain on a report for 1 to 2 years, so as debts get settled, these records will gradually disappear from my credit report.
Sorry for the long post, but I'm hoping for some feedback before I take the plunge.
Hi! I am sorry to hear about your present financial problems. Yo
Hi! I am sorry to hear about your present financial problems. Your credit score is one of the most important factors that will describe your financial worthiness. At this point, a wrong move can affect your score adversely. And the consequences will be like paying high interest rates and more often is the denial from your creditors. So, keep your credit scores in mind before making any serious decision.
You have done the right thing by keeping bankruptcy away from your options. This negative remark will stay in your file for 10 years and no lender will be willing to extend credit to you because of your past financial problems and due to the decision making.
Do not take a settlement program from any company if you are not guaranteed with the status 'paid' besides your accounts in your credit report. They will offer you 40% to 60% reduction in the total debt amount, but most important is how your credit will be viewed after taking this program in the future. Settlement companies negotiate with your creditors and after the accounts are paid, your accounts are marked as 'settled' in your file. This is the worst thing to your credit because it will express your inability to pay the balance owed and hence settling for a reduced amount. Once a negative remark is posted in your file, it can't be removed before 7 years as per the FCRA laws. If the settlement company can assure you that your file will be displaying 'paid' or 'paid as agreed' besides your accounts, you can take their program after completing all the paperwork. Get everything in writing from them and review the contract properly. Prefer to have the remark regarding update in your file from the company in writing.
If they can't guarantee anything other than 'settled' in your credit report, do not take that route. Steer towards the consolidation program. In fact, this will be surely the best move in all cases. This program does not destroy your credit ratings as you think. This is not a negative remark that will be shown in your file. Once you enroll in the program, it will remain in your file only as long as you are using the services. Once over, it will be removed from your file. Whereas, a settlement program confirms its stay negatively in the file for 7 years. Consolidation program can also you the same benefits that you are shopping for. Your total debt will be reduced eliminating the financial charges, late payment fees and many other charges. Besides, all your accounts will be combined into one payment and you will draw only one check towards your multiple creditors. Using the snowball method, when one account will get paid, you can use that portion of money for paying the other accounts. This way, the number of accounts will keep decreasing after completing payments. And, the portion of money can be used towards the remaining accounts ensuring larger payments to it. Thus, you will take less time to pay the full debt.
As one account gets paid, your creditors will report completion of payment to the bureaus. This results positive update in your file leading to increase in your credit scores. Be regular in making the monthly payments and you will be surely towards the better route to improved credit scores. One thing to remind you here is that no company can fix credit report by removing negative information from the file. If they claim doing so by offering some packages, they are trying to make money from you out of your innocence. Only the federal bureaus have the rights to remove negative information if there is a dispute in the file.
Do let me know your take on this. I will be willing to help you in your decision making. I will also like you to go through this thread for once and do a better comparison.
http://forums.debtcc.com/forums/comparison.html
Regards
Roxette
