Please help me nuke this credit card debt
March 28, 2017 4:46 PM Subscribe
I have three credit cards, two are fairly maxed but ok and on time. The third is a closed account that has the highest balance and I can't seem to get a handle on it. I'm three months late on that card. The card company is offering me a 45% settlement offer. This is very attractive but I'm sure that paying a settlement carries some long term risk. Someday I would like to buy a little house for me and my daughter.
I have 3 credit cards, and I owe about the same amount on all three. Two accounts are open and one is closed. I have been carrying the debt on the closed account for a few years, totally maxed, and the account was closed last year because I took a hardship repayment plan. I am three months late in payments to the closed account and they just offered me a 45% settlement.
I can afford to pay the settlement ($800) from my tax refund. However, a friend of mine recommends that I pay off one of the open accounts and then just focus on the closed account and keep making payments on the full amount. The total cost would be past due on the closed account ($300) plus full balance on the lowest balance open account ($1500).
I am trying to choose a route that has the least impact on my below average credit score, and I'm wondering if anyone here has been through something like this and can give me some advice. It is more attractive to me to just get rid of the closed account for $800. I can't seem to find any good information on the internet about the long term impact of such action, though I am sure that my situation is not entirely unique.
I can answer specific questions or feel free to memail me if that is preferable.
YANML and your answers are not legal advice! Some helpful tips or resources from you all will be very much appreciated. This situation is extremely embarrassing and I'd really like to make a positive first step towards better credit and no debt within a year or two. I have a second job in the summer months that can pay off one other card and most of the second open card if I don't use credit at all.
A good friend of mine who is a banker is helping me fix my finances and get back on track, but she doesn't know the best answer to my dilemma.
My options as I see them:
1) Settle on closed card for less than what I owe now, pay off open cards with my second job over the summer
2) Pay off open card now , pay off closed card and open #2 with my second job over the summer
Interest rates: Open accounts are at 18% and the closed account is at 13%.
And, if it matters, I make about $44k and have been at the same job for about 12 years.
Thank you for whatever help that you can offer, it will help me to weigh my options and get myself on a better track.
I have 3 credit cards, and I owe about the same amount on all three. Two accounts are open and one is closed. I have been carrying the debt on the closed account for a few years, totally maxed, and the account was closed last year because I took a hardship repayment plan. I am three months late in payments to the closed account and they just offered me a 45% settlement.
I can afford to pay the settlement ($800) from my tax refund. However, a friend of mine recommends that I pay off one of the open accounts and then just focus on the closed account and keep making payments on the full amount. The total cost would be past due on the closed account ($300) plus full balance on the lowest balance open account ($1500).
I am trying to choose a route that has the least impact on my below average credit score, and I'm wondering if anyone here has been through something like this and can give me some advice. It is more attractive to me to just get rid of the closed account for $800. I can't seem to find any good information on the internet about the long term impact of such action, though I am sure that my situation is not entirely unique.
I can answer specific questions or feel free to memail me if that is preferable.
YANML and your answers are not legal advice! Some helpful tips or resources from you all will be very much appreciated. This situation is extremely embarrassing and I'd really like to make a positive first step towards better credit and no debt within a year or two. I have a second job in the summer months that can pay off one other card and most of the second open card if I don't use credit at all.
A good friend of mine who is a banker is helping me fix my finances and get back on track, but she doesn't know the best answer to my dilemma.
My options as I see them:
1) Settle on closed card for less than what I owe now, pay off open cards with my second job over the summer
2) Pay off open card now , pay off closed card and open #2 with my second job over the summer
Interest rates: Open accounts are at 18% and the closed account is at 13%.
And, if it matters, I make about $44k and have been at the same job for about 12 years.
Thank you for whatever help that you can offer, it will help me to weigh my options and get myself on a better track.
You'll owe taxes on a charge off, keep in mind.
posted by empath at 5:13 PM on March 28, 2017 [3 favorites]
posted by empath at 5:13 PM on March 28, 2017 [3 favorites]
There seem to be a couple of different main schools of thought on paying off debt. You might like to read about "debt snowball" and "debt avalanche" to get an idea on different strategies.
I would personally pay at least the minimum payments on all three, and then put as much as I could towards one of the cards with the highest interest.
The settlement sounds tempting, but I'm really not sure what the pros and cons are so I won't offer an opinion on it.
posted by kinddieserzeit at 6:39 PM on March 28, 2017 [2 favorites]
I would personally pay at least the minimum payments on all three, and then put as much as I could towards one of the cards with the highest interest.
The settlement sounds tempting, but I'm really not sure what the pros and cons are so I won't offer an opinion on it.
posted by kinddieserzeit at 6:39 PM on March 28, 2017 [2 favorites]
I'm not clear on if the other two accounts are current. I'd use the money to bring the accounts current and have a small cushion so that you could avoid any further late payments, then hopefully have enough to accept the charge-off offer.
A lot of factors affect credit score, so another option is to try to get all the cards below 50% utilization (debt/credit limit). I'm guessing other factors are having a bigger impact. But you might read some of the web forums that really focus on this question to get the latest thinking.
posted by salvia at 7:12 PM on March 28, 2017
A lot of factors affect credit score, so another option is to try to get all the cards below 50% utilization (debt/credit limit). I'm guessing other factors are having a bigger impact. But you might read some of the web forums that really focus on this question to get the latest thinking.
posted by salvia at 7:12 PM on March 28, 2017
So, taking a settlement will definitely impact your credit score for as long as seven years. (This is from the experian website. Experian is credit reporting agency so pro-card issuers but i think it is trustworthy on this part.)
There is a thing called pay to delete but that only applies to situations where you haven't been paying anything and there is a plausible case to be made that it is not provably your debt.
If $800 is a 40% payment, then the total would be $1777. For extra $1000, you would avoid a 7 year ding on your credit rating. Since the closed card is a lower rate than the open one, go with option #2.
posted by metahawk at 7:17 PM on March 28, 2017 [2 favorites]
There is a thing called pay to delete but that only applies to situations where you haven't been paying anything and there is a plausible case to be made that it is not provably your debt.
If $800 is a 40% payment, then the total would be $1777. For extra $1000, you would avoid a 7 year ding on your credit rating. Since the closed card is a lower rate than the open one, go with option #2.
posted by metahawk at 7:17 PM on March 28, 2017 [2 favorites]
I'm a big fan of just paying them off in order of interest rates. It makes the most logical sense.. but some people like the Snowball method like kinddieserzeit mentioned above, because paying off the smallest debt first and getting rid of one bill feels good.
How I got out of tons and tons of CC debt is (after getting in with a non-profit Credit Counseling service), pay minimums on everything and then put the rest of what I had to pay toward the biggest interest card. Once that card is paid off, move to the next biggest. Good luck!!
posted by getawaysticks at 5:48 AM on March 29, 2017
How I got out of tons and tons of CC debt is (after getting in with a non-profit Credit Counseling service), pay minimums on everything and then put the rest of what I had to pay toward the biggest interest card. Once that card is paid off, move to the next biggest. Good luck!!
posted by getawaysticks at 5:48 AM on March 29, 2017
Debt settlement is noted on your credit report, so it will negatively affect your score to some degree. The credit bureaus have a vested interest in not letting you get a precise understanding of how much, though.
I think the more practical question here is: given that you are already behind several months in your payments on this card, do you think you can adhere to the payment plan going forward? Because constant delinquency is no good for your credit score, either. A realistic (not self-martyring and shame-driven) assessment of what you can afford to pay on a monthly basis is the first step in answering this question.
posted by praemunire at 8:28 AM on March 29, 2017
I think the more practical question here is: given that you are already behind several months in your payments on this card, do you think you can adhere to the payment plan going forward? Because constant delinquency is no good for your credit score, either. A realistic (not self-martyring and shame-driven) assessment of what you can afford to pay on a monthly basis is the first step in answering this question.
posted by praemunire at 8:28 AM on March 29, 2017
This is a slightly tougher then usual one. Generally, the best immediate effect on your credit score would be to pay off the closed account. This is because the balance is counting against your utilization, but there is no corresponding credit line, making it quite punishing for your score.
That said, a partial settlement won't do wonders for it either, but getting the late payments aging off is quite helpful.
Ask for a pay for delete. Regardless of what it's "for," you can ask that the account be deleted from your report entirely in exchange for you paying the 45% or whatever the offer is. That will remove the associated late payments and recover your score significantly. It still won't be great if your utilization on the other two accounts is 70%+, but it will be easy to fix by paying them down some. (I'm assuming the other accounts are current and have little to no negative history in the past 3 years)
posted by wierdo at 8:29 AM on March 29, 2017 [2 favorites]
That said, a partial settlement won't do wonders for it either, but getting the late payments aging off is quite helpful.
Ask for a pay for delete. Regardless of what it's "for," you can ask that the account be deleted from your report entirely in exchange for you paying the 45% or whatever the offer is. That will remove the associated late payments and recover your score significantly. It still won't be great if your utilization on the other two accounts is 70%+, but it will be easy to fix by paying them down some. (I'm assuming the other accounts are current and have little to no negative history in the past 3 years)
posted by wierdo at 8:29 AM on March 29, 2017 [2 favorites]
Oh, I forgot to finish my comment. Sigh.
If they won't agree to a PFD, pay whatever you need to pay to get the account current so that you stop having the new 90-120 day delinquencies show up each month and pay the minimum going forward. Spend the rest paying down one of the 18% cards, since that will give you the most bang for the buck long term.
If your plan to buy a house is more than two or three years out, a (by then) old settled account won't scupper the deal, so it doesn't make a huge difference either way. However, if you might need access to credit to buy a car or something in the meantime or would like to buy a house sooner getting the negative account off your report entirely will be a lot better than a settled/partial notation. It also will likely get you the opportunity to work a 0% balance transfer deal once you have the remaining accounts paid to less than 50% utilization, negating the difference in interest rate vs. paying the 18% APR cards first.
posted by wierdo at 8:43 AM on March 29, 2017
If they won't agree to a PFD, pay whatever you need to pay to get the account current so that you stop having the new 90-120 day delinquencies show up each month and pay the minimum going forward. Spend the rest paying down one of the 18% cards, since that will give you the most bang for the buck long term.
If your plan to buy a house is more than two or three years out, a (by then) old settled account won't scupper the deal, so it doesn't make a huge difference either way. However, if you might need access to credit to buy a car or something in the meantime or would like to buy a house sooner getting the negative account off your report entirely will be a lot better than a settled/partial notation. It also will likely get you the opportunity to work a 0% balance transfer deal once you have the remaining accounts paid to less than 50% utilization, negating the difference in interest rate vs. paying the 18% APR cards first.
posted by wierdo at 8:43 AM on March 29, 2017
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posted by Unsomnambulist at 5:03 PM on March 28, 2017 [3 favorites]