Often two people have debts together – husband and wife, parent and child, even siblings and friends can share debts. Having joint debts can be difficult to deal with when one person – or both people – can no longer afford to keep up the payments on the debt. If you’re considering debt settlement and you have joint debts, you must include the other person in the process.
Settlements Affect Both People’s Credit
Anytime you share a debt with someone else, your payments and non-payments are reflected on the other person’s credit report. When you stop making payments on joint debt, the other person’s credit will likely suffer too. You should warn them that this is going to happen and see if they can pick up payments on the debt if necessary.
When you fall behind on payments, creditors will likely come after both people for payment on the debts. This means not only will you get phone calls and letters about the debt, the cosigner will get phone calls and letters too. The same collection tactics creditors can use on you, they can also use on the cosigner. That may even mean a lawsuit or garnished wages.
If you successfully settle the account, the settlement note should go on both people’s credit reports even if you were the one to pay the settlement. The cosigners credit will possibly be hurt by that status even if they’re up to date on all their other payments.
Could Be Harder to Settle
When you approach a creditor about settling a joint debt, you can count on them asking whether the other cosigner (more…)
A charge-off is one of the worst account statuses you can have. Charge-off typically comes after you’ve been late on your credit card for over 180 days. That means you’ve missed at least six monthly payments by the time your account is charged-off. If you can settle your accounts before they reach charge-off status, you may be able to avoid having such a negative blemish on your credit report.
When Does Charge-Off Happen
It helps to know when your accounts are going to charge-off. The charge-off clock starts ticking from the date you miss your first payment. So, if your payment was due on March 5, then March 6 is day 1 of the charge-off clock. By September 2, your account would be charged-off. You can use an online date calculator to get the expected date of your charge-off. Just enter your last payment due date and add 180 days to see when your account will be charged-off. You want to settle your account before this date.
Know the Charge-Off For All Your Accounts
To help organize your settlement offers, write down the date you expect all your accounts to charge-off. It will also help if you write down the date your accounts reach 90, 120, and 150 days late since you’ll also probably want to make settlement offers on these days, too. You’ll want to make settlement offers on all your accounts, but you probably want to give priority to the accounts that are closest to charge-off.
How to Settle Before Charge-Off
Many credit card issuers will let you settle your account before charge-off, but that means you likely have to act fast because (more…)
If you’re overwhelmed with credit card debt, you may consider filing bankruptcy to either get rid of your debt or to restructure your payments so that your debt is easier to repay. Here are some details about bankruptcy to help you decide if it’s the right choice for you.
Two Types of Bankruptcy
There are two types of bankruptcy for consumer credit card debt – Chapter 7 and Chapter 13. Chapter 7 bankruptcy typically allows you to get a discharge of allowable debts – most credit card debt can be discharged, but there are a few exceptions, like debts that were incurred through fraud. To qualify for Chapter 7 bankruptcy, you must pass a means test that shows your current monthly income (as defined in chapter 7 of title 11 of the United States Code) is lower than the median income in your state. Chapter 7 bankruptcy may require you to give up some assets – if you have any. Those assets would be sold and the money used to pay back your debt. There are state and federal laws governing what assets you can keep and which you have to give up.
Chapter 13 bankruptcy is usually for consumers who make too much money to qualify for Chapter 7 bankruptcy or consumers with assets they don’t want taken by the bankruptcy court. Under Chapter 13 bankruptcy, consumers repay some or all their credit card debt through repayment plan that lasts three to five years. Debt repayment is prioritized, but you might not pay any of your credit card debt. Unsecured debt that remains after the repayment period is typically discharged.
Consequences of Bankruptcy
There are some negative side effects of bankruptcy that must be considered before you file bankruptcy. Bankruptcy will (more…)
You can typically make debt settlement offers in two ways: either over the phone or by mail. Some people prefer to make their negotiations through the phone because it eliminates the time it takes to receive a letter and get a response back. Other people like to settle accounts through written correspondence because creditors don’t get the chance to talk you out of a settlement. People have been successful with both methods. If you choose to make a debt settlement offer by mail, here’s what you should include in your letter.
- Keep your letter short and to the point. Don’t give a complete rundown of your situation in an attempt to get sympathy from the creditor. The creditor probably won’t read the entire letter anyway. Just give one or two sentences to explain what happened and why you can’t pay your debt. For example, “Expensive medical debts have kept me from keeping up with my regular payments.”
- You should make sure you let the creditor know that your financial situation hasn’t improved to the point that you can make regular monthly payments on your account. Add that you may be able to come up with a lump-sum payment to settle the account if the creditor is willing to accept the offer.
- Calculate your settlement amount. Decide how much money you can afford to put toward this debt and include that amount in your settlement letter. Typically the amount should be between 40% and 60% of the total amount that’s currently due on your account. Refer to a recent copy of your billing statement to figure out how much you currently owe.
- If you’ve already settled some accounts, you might mention this. But, remember that your creditor can (more…)
To repair your credit after your debt settlement, it’s important that your settlement is accurately listed on your credit report. Soon after you settle your accounts, check your credit report to make sure your accounts are reported correctly. Handle discrepancies as soon as possible either with the credit bureau or with the business who settled your account.
Each account status should show settled or something similar. If your accounts continue to be reported late every month, they’ll keep affecting your credit score. Give the creditors and collectors 30 to 60 days to update your account status, then check your credit report to be sure the account status shows “Settled in Full” or just “Settled.”
Balance due reported as $0. Your credit report should not show that you owe a balance on your account. If it does, it could mean something went wrong with the actual settlement. When your account shows you have a balance owing, there could be a chance the creditor or a collector will come after you later on for the rest of the balance.
Get a paid in full letter. After you settle your accounts, try to get a paid (more…)
If you’ve recently come into a large sum of money and you need to pay off some debt, consider a full and final settlement with your creditors. Through a full and final settlement, you would offer your creditor a lump sum of money that’s less than the full amount you owe. If the creditor accepts your offer, make sure they also agree to cancel the remaining portion of your debt. Just like that you’ve gotten your debt out of the way.
How to Make a Full and Final Settlement Offer
More often than not, you must have fallen behind on your payments enough for your debts to be possibly referred to a collection agency. Creditors will almost never accept full and final settlement offers on accounts for which all the payments are current.
To make an offer for a full and final settlement, send a letter to your creditor or the collection agency which offers a settlement amount. In the letter, you should include a brief sentence stating why you are unable to make payment in full. For example, you may have expensive medical bills or a recent job loss. Your letter should also include the amount of the full and final settlement you’re able to pay and a statement that if the creditor accepts the offer they will no longer pursue the remaining amount of the debt.
If you don’t feel confident making your own full and final offer to the creditors, you can (more…)
Many people fall into this type of situation – they experience financial setbacks that prevent them from keeping up with monthly debt payments, but they have enough money in a retirement account to pay a portion of the debts. Strongly consider the consequences of using your retirement money to settle your debt.
Consequences of Withdrawing from Retirement
Many retirement accounts charge a penalty if you withdraw money before you reach age 59 ½. The amount you withdraw typically must be included in your taxable income if the contribution was made pre-tax. That could increase your tax liability and may cause you to end up with a tax bill when you file next year’s tax return. You may also face an additional 10% tax penalty.
There are some exceptions to paying the early withdrawal penalty. For example, the penalty doesn’t apply if the distributions are equal to or less than your deductible medical expenses. Unfortunately, most of the exceptions don’t apply if you’re using the money to pay off your credit card debt.
Losing Retirement Money
Taking money from retirement to pay off debt can be bad in the same way that creating debt can be bad – you’re essentially (more…)
Debt settlement is just one of several options for dealing with debts, and may not be best suited for everyone. There are a few alternatives to debt settlement, so before you go through with debt settlement, and deal with the possible negative side effects, it’s important to make sure it’s actually what you need for your debt.
Can you afford to make your minimum monthly payments right now?
If you’re comfortably making the minimum monthly payment on your credit cards each month, then debt settlement may not be the solution you need. By paying the minimum on your credit cards, you’re probably not hurting your credit score. When you stop making these minimum payments, which is almost always a condition for debt settlement, your credit score will likely suffer.
If you’re making the minimum payments and you can afford to make a little more, then you might consider a debt snowball where you send a higher payment to one of your credit cards each month (while making the minimum on all your others) until that card is paid off. Then, you’ll do the same thing for another credit card. Repeat until all your cards are paid off.
When you’re making your minimum payments, but feel the pinch in your budget, you may consider consumer credit counseling. Credit counseling agencies talk with your creditors to negotiate a lower (more…)
Creditors don’t necessarily want to settle your accounts. There’s probably nothing exciting to them about getting just $5,000 when they actually loaned you $10,000. So don’t be surprised if you hear some objections from them when you make a settlement offer. Here are some of the things a creditor might say when you mention that you want to settle your account.
“We don’t do settlements.”
For many creditors, this is just a bluff. Creditors may say they don’t do settlements to get you to pay the account in full or enter some type of payment arrangement that would make your account ineligible for settlements. You’ll commonly hear this the first time you mention settlement, especially if your account is only a few months past due. As your account gets more delinquent, the creditor may stop saying “We don’t do settlements” and start saying “We only settle for 80% of the amount due.”
“But you’re making your mortgage payments on time.”
The number of Americans who can’t pay their debts is increasing. According to the Huffington post, even though the US credit card debt is in its lowest level in eight years, Americans are actually taking on more debt! “While banks wrote off a total of $75 billion in credit card debt, the level of the debt only declined by around $67 billion” and “the entire decrease in overall debt is the direct result of Americans defaulting on their debt”! I think somewhere in the past we forgot all about budgeting and living within our means. When you fail to plan, every little bit of bad luck can have a huge effect on your finances. Let’s all put some efforts into learning how to successfully live on a budget using these 13 posts about creating, balancing and sticking to your personal budget! (more…)