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Thread: Negotiating ( delinquent ) credit cards

  1. #1
    Moderator Miss_McKenna's Avatar
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    Skull Negotiating ( delinquent ) credit cards

    I'm hoping to get some kind of advice that I can pass on to my roommate... she's not a dancer so there wasn't a chance in hell I was giving her the site link and losing my safe zone of stripperness BUT some people on here have insane amounts of knowledge and I would like to be able to help her, despite the fact that she is a bit of a disaster (see, I can't say things like that if I point her to the site lol!)

    She is only 22 and still in school so she works part time (she's a waitress or seating host or something at a restaurant), and the other day she told me she hasn't been making payments on her credit cards. She doesn't take that kind of thing very seriously and so I explained to her about credit scores, buying a house/car in the future etc, and she looked up her score and it was awful. Now she's panicking and wants to fix it, but she doesn't know how. I've always made at least the minimum payments on my cards so I told her to keep that up, and then she said that she hasn't even been paying that on any of them in months. Apparently they call her a lot but she avoids their calls and they only have her old dorm address for mailing *facepalm*

    By not paying, they tacked on a bunch of fees and now she's in a position where she can't even get them back within their limits, because all the money she can give them would only cover the over-the-limit fees and such, and she'd be struggling to make the minimum payments anyway which I imagine is why she stopped paying to begin with. She refuses to ask her parents, and so I told her that sometimes credit card places will work with customers to negotiate affordable payments etc, just so long as they can get back to at least getting *some* money each month. One of her accounts isn't available to view online anymore but the other two have numbers etc that you can call if you can't make payments.

    I'm wondering what sort of stuff she could use to help get this sorted out with her banks, as in what should she offer, is there anything she can say to try to get the banks to work with her? Can she do anything to try and get on a payment plan, and maybe to get them to report to the credit bureaus that she is cooperating and making an effort to fix it?


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    Veteran Member Robertjordan's Avatar
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    Default Re: Negotiating credit cards

    You did give her good advice, she should pay at least the minimum on each card. And yes, she can attempt to settle the outstanding debt with each card. How? Make them an offer. How much? Offer them whatever you can pay right away to settle the debt entirely. They can do one of two things. Accept and you're done with it. Deny and you're in the same place, no better or worse. I'd probably start with 25% and be prepared for them to counter-offer. Also make sure you have enough money to pay whatever you agreed upon.

    Of course settling debt like this will hurt her credit score (in the short term). But it will get her out of debt and allow her to rebuild it (over the long term). If she is just interested in paying the debt then she should make minimums on all of them and pay down the one with the highest balance. When its gone go after the next highest one.

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    Banned Melonie's Avatar
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    Default Re: Negotiating credit cards

    I'm wondering what sort of stuff she could use to help get this sorted out with her banks, as in what should she offer, is there anything she can say to try to get the banks to work with her?
    From a 'real world' standpoint, given your roommate's already disastrous credit rating and her amount of income that doesn't have a prayer of being able to pay off her credit card debt within 3 years, I'd recommend the following ...

    A. inform her credit card underwriting bank that a bankruptcy filing is imminent unless they will agree to 'settle' for a low 'prime' interest rate plus the waiving of all late fees and penalties that were added to her balances. Since she does not have access to a 'lump of cash' her options to settle in a conventional manner ( i.e. I'll pay you 50% of what you say I owe tomorrow of you agree to list my accounts as 'settled in full' ) this is about all she can ask for.

    B. when the bank refuses ( and they will, since they have no 'some cash right now' motivation to settle ), follow through on a Chapter 7 bankruptcy filing ... which should be no problem given her low income level

    Three years down the road, her post-bankruptcy credit rating will probably be just as good as trying to pay off an unmanageable level of credit card debt under 'penalty' interest rates with late fees ( and failing ).

    From year four to year 7 the bankruptcy filing will work against her somewhat ... but given the new 'issues' re income verification and credit risk assessment it's doubtful that she'd be in a position to be seeking a mortgage or new car loan in any case ( and she can always buy a GM vehicle ... they don't care about buyer credit rating since the US Taxpayer is guaranteeing Ally Bank auto loans via TARP funds ! ).

    From year 8 forward she'll definitely be better off !!!

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    Default Re: Negotiating credit cards

    First off, this is my first post. Why am I here? To make a long story short I am an accountant following the dollar like everyone else. I am considering going out on my own in the next two years and would like to know more about your industry. Occasionally I come across an article about the need for good accountants in the "adult industry." I see these articles, but never see any opportunities. So I am here to learn from the Dollar Den and in return give advice when I can help. I am not a creepo looking for freebies. On to my opinion.

    Has the unpaid debt gone to collections at this point? If so, she can bargain with those guys. They purchase the debt at a huge discount. I recently helped someone that originally owed 12k to a major credit card. It was sold to a collection company and they started blowing up her phone line night and day. They eventually settled for 3k. This example shows that there is some major discount room. If I personally had debt with a collection agency, I would start working them... play their game. They will keep calling if you answer the phone. Send them a little money like $25 so they don't sell your account to another company. Remember these people are trained to work you and make you angry so you will say things. Listen and you can hear them typing notes as you talk. Start telling them about all your financial problems and what a rough time your having. The main thing is make them think you want to pay off your debt. I would carry on these conversations for a couple of weeks. Find someone that doesn't annoy you to death and ask for them when they call. At some point they will offer a settlement. You can get them lower. I think 25%-30% of the original amount is a good goal for a settlement. You can tell them you are going to try and get a loan, then of course tell them you were denied and there is no way you can come up with that kind of money. The person I helped led them on for about 2-3 months and sent about $40 a month. They answered the phone when the collectors called and told them how tight money was. They eventually told the collector that a friend was willing to loan 3k and that's all that could be done and collections took it. Think of it like buying a new car. The salesman is trying to get as much commission as possible. They do not care about your well being.

    More than likely your roommate will receive a 1099-C from the collection company. This is the difference between the original amount owed and what was paid. The amount is shown as income on your tax return. Don't throw out a 1099 because the IRS receives a duplicate copy. The good thing is your roommate is in school and should be using the education credit not to mention that most students are broke and get money back. These amounts will offset some or all of the new tax liability.

    If the banks still own the debt I would try to get them to cancel some or all of the late fees and interest that has accrued. It has been my experience that banks will not offer as large of a discount as a collection agency. This will be one less black mark on the credit report. More than likely when she stopped paying, the low interest rate was defaulted and is now some ridiculous percentage. She can offer a lump payment if they will reduce the fees that have been added and then make payments on the rest. Beware of the minimum payments. If they do not cover the interest then she will be in a black hole going deeper each month. Make sure the interest is covered every month to at least stop the debt gain. Be on time with the payments. Those $40 late fees add up fast.

    I cant tell you how many people I talk with that just say "screw it" and let the debt go. I guess that is fine if you can pay cash for everything for several years. Cars will be tough to purchase if cash is not paid, no house purchases, and I have been told that many apartments will not lease if your credit is hammered. Different areas of the US are in different situations so keep that in mind with different dealings. Google the bank and collection company and see if they are cash starved. Finally, if you pay off a collection agency have them send you proof of payment immediately and keep it in a safe place. Good Luck!

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    Default Re: Negotiating credit cards

    One other thing is the amount of debt. There is a big difference between 5k an 50k in credit card debt. Just tell her to talk to the lenders and don't be afraid to ask for more. Many of the collectors get paid or get bonuses based on a percentage of accounts collected. So have her lead them on and keep them hungry.

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    Banned Melonie's Avatar
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    Default Re: Negotiating credit cards

    Hello Taxman and welcome. However, your choice of handle does lead to mistaken first impressions since it's ambiguous as to which 'side' you are on LOL !!!

    Obviously your experience and insights are appreciated. Indeed it is ( sometimes ) possible to settle delinquent credit card debt for 30 cents on the dollar ... but to do so one still needs to have the 30 cents !!! In this case it was indicated that the OP's actual income level was barely sufficient to cover minimum payments + fees and penalties on her existing credit card bills, leaving no room for her to save up even a small 'wad of cash' with which to entice creditors into a favorable settlement. Perhaps I'm wrong in this, but collection agencies are all about converting a 'worthless' debt into some amount of actual recovered money, aren't they ? In this case it would appear that the OP has nothing to offer them in that regard.

    The situation would be different, of course, if the OP was able to obtain enough 'cash' from her parents or other source to be able to offer a 30% immediate 'settlement' payment to her credit card lenders. And indeed the OP does not state whether we're talking about $5k or $50k worth of outstanding credit card debt. Obviously the larger the outstanding debt, the more 'advantage' a bankruptcy filing will offer in light of the OP's current status as a low income college student.

    There's also unspoken considerations given that the OP is a college student ... who at some point in the next few years will obtain her degree and be looking for a 'straight' job. When that time comes, potential employers will be looking at her credit rating as part of the job application process. I would think that a bankruptcy filing followed by a couple of years worth of demonstrated financial responsibility ( via on time payments etc. ) constitutes a smaller 'negative' than an ongoing credit history reflecting several years of late / partial payments.

    While this applies more to exotic dancers than to a waitress / barmaid, there is also the 'new' issue of future lenders being required to 'verify' income for future auto loans, apartment leases, home mortgages etc. Thus, regardless of personal credit rating at the time of future applications for such, and regardless of the existance of a past bankruptcy filing, a low level of 'verifiable income' is going to be problematic re obtaining approvals from mainstream auto lenders, corporate landlords, mortgage lenders etc. It was from this viewpoint ... i.e. many years will pass before graduation plus obtaining a 'straight job' with enough verifiable income level to actually qualify for a future new auto loan, apartment lease, home mortgage etc. ( plus saving up down payment money ) ... that my comment about a bankruptcy filing being less harmful in the 'long run' ( i.e. 7 years ) was based.
    Last edited by Melonie; 06-15-2011 at 12:33 AM.

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    God/dess Zofia's Avatar
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    Default Re: Negotiating ( delinquent ) credit cards

    Miss McKenna, have your roomie pull her credit score and see how low it is. Next, have her get her credit reports, see how bad they are. If her credit score is below 600, she'll probably see it increase shortly after bankruptcy. For certain, some lenders (American General comes to mind) will be more willing to lend post bankruptcy because they know she has to pay them and there's little she can do to avoid paying for seven years!

    Also, Fair Isaac which calculates credit scores does not compare people who have recently filed bankruptcy with people who have spotless credit reports. Instead, they compare bankrupts to bankrupts. Thus, if your roomie goes Chapter 7 and then acts responsibly with her post petition debts, she could build a good score fairly quickly.

    HTH
    Z

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