Question about how to pay down bad credit

[Avani]

How should i go about paying off bad credit. These are all closed accounts with creditors not the original companies. Will collection agencies negotiate a settlement? Should i go to a credit agency and have them combine all the debts and pay one monthly fee? Or should i pay off one thing at a time? My credit is not good. I have 11 closed acct's with a total of $4200. I have no open acct's and i did apply for a secured credit card so i could try to rebuild credit but i was turned down. I was turned down because i just found out that 4 medical bills were turned into collection agencies in the last 6 months. This is really bad. I used our local ER 4 times last year for my children and they never billed my insurance and it went to collections and i never received the bills. I was in a shelter at the time so i didn't get them. So i called the collection agencies and they said that they are a collection agency and not a billing dept. I can send them the medical insurance info and they may or may not bill them for the amounts. They also will only say the acct is paid on my credit report and not actually pull it off. I am seriously sad about this because i was working hard at not doing anything worse to my credit. Do i have any rights with that situation? So, credit counseling or pay off one thing at a time?Thank you!

[Vypros]

Well, I think the mama's here are into Dave Ramsey's debt snowball approach here, so I'll give you that.

Take all your bills and arrange them from smallest to largest. Pay minimum payments on EVERYTHING but the smallest bill and then attack the little one (with gazelle inensity! lol) and pay it off as quickly as you can. When you pay it off, roll the money you used to pay it off up to the next highest amount bill you have and pay it off. Each time you pay one off, use the money leftover from that to work on the next highest one up until they are all paid off.

It's as good a plan as any I suppose. Some other suggestions:

Absolutely call each one (as you are ready to start focusing on that particular one) and talk to the creditors and see if you can "settle" on a lesser amount of interest to pay it off (this usually only works if you have been falling behind on payments and stuff though). But bear in mind if you do this, it'll go on your credit report as a "settled" debt--which will hurt your score. But it's an option if you just want to get out from under it.

Another suggestion. Pick up a copy of "America's Cheapest Family Gets you Right on the Money" by Steve and Annette Economides to pick up some tips on how to slash your monthly expenses.

Also, look around your house and see what you can sell and have a garage sale, put an add on craigslist, in the paper, wherever and sell as much stuff as you can to get some money to pay these debts off.

Finally, in the middle of all this, even though you have debts, I suggest you start "paying yourself" first. Meaning, and I know this goes against Dave Ramsey, that you should start putting a set amount into savings with every paycheck. Even if it's only $20 a paycheck. Get yourself into the habit of making that payment to your savings, so that when your debts are paid off, you can start putting that "debt" money over into savings.

After your debts are paid off, I'd look into opening a money market account to house your savings (as they get much better interest than regular savings accounts) and start looking into things like IRAs, college funds, and stocks/bonds/mutual funds.

Good luck.

[Avani]

Are you stalking me?

Considering i left an abusive partner i have zero belongings, so other then my children i have nothing to sell.

There are no minimum payments to make. My acct's are all closed. Creditors tell me they want full payment, no smaller payments and no settlements. I just wonder if they will settle. I also want to know if there is something i can do about the medical bills being on my report.

I have an emergency fund in place.

[RolliePollie]

I just want to say that I had a closed account with high interest and I was able to make a deal with the CC company themselves. They removed all interest on my account and it lowered the amount owed, but I had to pay a pretty high payment each month. It doesn't hurt to talk to them. But be firm of course. I found that a credit counseling agency was unable to help me as much. You can send letters to the credit reporting agencies to put in your report regarding your medical bills.

[Vypros]

Originally Posted by Avani

Are you stalking me?

Considering i left an abusive partner i have zero belongings, so other then my children i have nothing to sell.

There are no minimum payments to make. My acct's are all closed. Creditors tell me they want full payment, no smaller payments and no settlements. I just wonder if they will settle. I also want to know if there is something i can do about the medical bills being on my report.

I have an emergency fund in place.

lol no I am not stalking you, sheesh. This forum and the SP are the two main forums I lurk here (although I do lurk other forums from time to time).

Ok, then don't worry about minimum payments then (that's helpful that you don't have to worry about that). And you have to get really firm with creditors to get them to settle. I don't know how "ethical" you are, but you could pretty much say that you are struggling with your bills and need help to make them, and that you are calling all your creditors to see if they will settle or else you are putting them in a bankruptcy (even IF you don't have any intentions of bankruptcy--I know, that's lying and I don't ENCOURAGE it, but you'll get results if you do it, I garauntee it lol).

How much is in your emergency fund? Could your emergency fund pay off the debts?

Like if you have like $5000 in your emergency fund, I would suggest pulling $4000 of it out (leaving you at a $1000) to pay them off and then just work on building your emergency fund back up.

[Vypros]

IF you are considering doing a debt management/consolidation thing, I suggest Consumer Credit Counselling Services (CCCS) as they are non-profit. They will get you reduced interest rates (but you will pay them a falt 7% fee for entering their program) and they will get your debt reduced a bit.

But realize this much...it will literally destroy your credit (almost as bad as a bankruptcy, except it only stays on your report for 7 years instead of 10).

[Avani]

So a credit card company would settle a debt that they have already passed on to a collection agency. I thought at that point the debt was out of cc hands? This is why i considered a credit agency because i don't know these details.

Vypros, like i wish i had like $5000 in savings but like i don't. I have a very small cushion that like will not like pay off my debt.

[Avani]

My credit score is currently 543. So consolidating debt would make that worse? And why the hell does working on your credit and consolidating it make your score worse? Seems like the credit system needs to be revamped so that the average, screwed american can get ahead.

[ustasmom]

Go over to CreditBoards and read up on collection agencies.

I think that you can DV them (they have to verify the debt). Since they are not the original lender, they often cannot do it and drop it.

[Avani]

What does DV them mean?

[Vypros]

Originally Posted by Avani

My credit score is currently 543. So consolidating debt would make that worse? And why the hell does working on your credit and consolidating it make your score worse? Seems like the credit system needs to be revamped so that the average, screwed american can get ahead.

That's a good question. I think it's because these companies get your debt reduced (i.e. you are not paying back the full amount) and since you do that, that's a negative thing to a lender.

[zersha]

You know, paying all these closed accounts won't actually help your credit at all. It will just show up as paid, but will still be there.

The only way it would help you is if they will do a pay for delete. You would need to get this in writing before you pay, and only send them a money order for payment. DO NOT give them your bank account info and do not actually sign anything you send them. I've heard of extra money being pulled from bank accounts, and signatures magically transferring to other documents.

Don't even bother talking to them until you would have enough money to pay off an account entirely. I would just be firm with each creditor. Ask what their best settlement offer is, and say you will only pay if they do a pay for delete. Some will act dumb and say they can't do it. Then just tell them you have lots of other debts, and only a certain amount of money that you can pay, so you will see if one of the other creditors will agree to your terms and accept your money.

Do you know what the removal dates for these debts are? I would work hardest on the ones with the farthest away removal date, maybe some of the others will fall off your report soon anyway.

If they don't accept your terms, and they are harrassing you, find out their address and send them a limited cease and desist letter. That way they can only contact you by mail.

I know we should all pay our debts, but if you don't have a ton of surplus money, I think you should work on paying things that will actually help your family/credit. Even if some of these things stay on your credit, after a few years they don't carry as much weight as more current things, so you may be able to get a secured card down the road.

[Stace]

Originally Posted by Avani

What does DV them mean?

DV = Debt Verification. Seriously, go check out creditboards.com - they will help you with the letters you will need to write (because you DON'T want to deal with collection agencies over the phone, you want a paper trail) to try and get you in better standing. Though, honestly, since you said everything's in collections already, you're really only going to get a better credit score if you can get some of those collections deleted once they're paid off. Paid collections don't look any better than unpaid collections, and if they stay on your reports, the only thing that will improve your score is time and/or being able to get new lines of credit.

[Avani]

Great advice, thank you. I want those medical bills pulled off my credit because we have insurance and the hospital didn't bill them and now my credit is damaged.

[zersha]

There is a difference between debt verification and validation. They can explain it better at creditboards.

I think your first step should be to dispute these debts with the credit reporting agenicies. It will then be up to the collection agencies to prove these debts. If they don't have the original bills from the hospital showing exactly what the charges are for, they will be removed with no further problems. It sounds like they might not have all the original billing information if they are unwilling to have this billed to insurance. They have either bought this from the hospital, in which case the hospital is now completely out of the picture, or they are just collecting for the hospital. If that's the case, you should still be able to work directly with the hospital to clear this up.

If they are able to verify with the credit reporting agencies, I would seriously consider talking with a lawyer. These bills were not handled correctly if the hospital didn't process your insurance. The collection agency is unwilling to work with you, but I'd bet they'd bend over backwards to bill this to the insurance and remove it from your credit report if you had a lawyer contacting them. The amount you save by having these bills paid by insurance might be offset by the lawyer bill, but at least the lawyer could get it off your credit report, which it sounds like is more important to you.

Just don't let them bully you into paying these if they won't remove it from your credit report. It really won't help you at all if they aren't removed. And it sounds like they shouldn't have been there in the first place anyway.