CCC Consolidation or Take the Settlement Offers?

[fireflies~for~me]

We have 23K in consumer debt. This doesn't include school loans.
DH graduates from Grad School a week from today - yay!

We've been getting many offers to pay settlements on these various debts. Like 50% in some cases. Should we try to eek those down that way and have some breathing room for once

Or

Should we go with the Consumer Credit Counseling plan and consolidate them all for $600 bucks a month. That will mean DH will have to scramble to get first job out of school, which to me = more stress.

We've maintained a good marriage and zero stress about money simply by ignoring it while he has been in grad school. I care more about my family than my credit score. But, need to avoid garnishment of my wages, obviously.

Advice?

[p1gg1e]

Id settle. Get it in writing first and then after you pay keep the settlement in a special place ( like a file where you keep taxes)..some time it come back..they are sneaky you pull out the form.

[mamadonna]

I would settle, too. Be mindful if you do, though, that they can send you a 1099-C for the cancelled debt and you will owe taxes on it (you have to claim it as income, I believe). Perhaps you can negotiate with them not to send you one...I don't really know.

[raykelnickicola]

l

Edited by raykelnickicola - 3/16/11 at 10:49pm

[chiromamma]

Usually, settlement requires a lump sum. Is that the case here and can you swing it? Is the $600/month more or less than you are paying towards your CC's each month? I agree a FICO score means little in the greater scheme of things but if you can preserve it while getting rid of the debt, you should.

[NaturalMama311]

Definitely take the settlements but as PP said, get it in writing. I did the CCC many years ago when I was $25K in cc debt and it ruined my credit for many years. What the CCC's don't tell you is how much it affects your credit. Your credit score is based on your credit ratios - how much of your available credit you are actually using.

So if you have a cc with a $5000 limit and you have $300 charged it helps your credit....however if you have $4800 charged it negatively impacts your credit. When you enroll in the CCC your credit limits are reduced every time payments are made. I would still get the statements from each of my credit cards every month and the available credit was less and less each time.

For example, one month I would have $1000 available credit with a $975 balance. Next month a $50 payment would be made so the balance would go down to $925, then credit limit was then reduced to $950.

Yes it helped me get out of debt because I was so far behind and was being hit with so many late fees, over limit fees, interest, etc. that I was drowning becuase the min payments were ridiculous. But, my credit kept getting worse and worse until it was all completely paid off.

[Smithie]

I think settlement offers are a beautiful thing! You should take at least the best of them. FICO aside, I think it's GOOD for the companies who have issued the huge credit limits and collected the usurious interest to make redress directly to you, the consumer (even if you personally don't feel like they pulled a fast one on your family, rest assured that there is somebody on your block who got totally snowed by the very same company and has basically had their life ruined).

[fireflies~for~me]

Wow!

Awesome advice and I am hearing a trend here...Thank you!!!
And Smithie, I never ever thought of it that way...great insight!

Probably my main concern is the big one- 13K- that is already in an attorney's office....

Man, the way the economy is now though, I'm sure we are not the only ones that creditors are having to just eat what they will lose from us. Looking back, ALL of this credit debt was when we were young, newly married, trying to finish undergrad school, etc. Yes, we want to take responsibility for what we signed, but not sure we really understood what we were getting into.:

Now, we have no credit cards and rarely even write a check on our checking account...only use cashier's checks/debit.

[mamadonna]

Originally Posted by fireflies~for~me

Probably my main concern is the big one- 13K- that is already in an attorney's office....

A lot of collections companies will threaten to sue you, but they'll never follow through. If your accounts have already gone to collections, I wouldn't worry about trying to negotiate with those companies until you get a lump sum together.

But it is possible the rare one will follow through and actually sue you. If they do serve you, their attorney might then be willing to negotiate a payment plan with you. I did that with Discover Card several years back to avoid going to court. I paid $150 / month and then when I got a lump sum of money together, I negotiated with them to pay it all off at once at a percentage of the balance due.

[cristeen]

Definitely settle. CCC can actually make things much worse. There are some companies who will not negotiate with them at all, and will therefore report negatively (non-payment) every single month. There are also companies that will negotiate with them on payment amount, but not payment date - so that every month when they receive the payment it's marked as being late. That also gets reported every month.

Just keep in mind that unless you have cash in hand, you shouldn't bother to try to settle. Any settlement will require payment in full immediately. Never send them payment without a written agreement though that states that the debt of $X due Y company will be considered paid in full upon receipt of $Z. Then make sure you get a receipt and staple them together. Even if you don't manage to get a letter from them saying that the account has been settled and PIF after the fact, the agreement and receipt will cover your butt.