Getting a lower payoff amount with a credit card

[~Megan~]

My mom has offered to help us get out of a very bad credit card situation by moving our balance over to a 0% loan.

I've heard that you can negotiate a much, much lower payoff than the actual balance.

In our case half of the balance is interest and fees.

Any advice on how to accomplish this goal?

[1growingsprout]

Originally Posted by ~Megan~

My mom has offered to help us get out of a very bad credit card situation by moving our balance over to a 0% loan.

I've heard that you can negotiate a much, much lower payoff than the actual balance.

In our case half of the balance is interest and fees.

Any advice on how to accomplish this goal?

Several things to consider
1. will you have to pay income tax on the amount the original creditor 'writes off' This is very common nowadays.
2. If the creditor allows you to pay off a lower amount how will that be reported to your credit?
3. GET EVERYTHING IN WRITING and keep very detailed notes of who you speak to, times (in your time zone) etc.
4. is you mom going to pay off the bill then you pay her back? or is she moving it to a loan/credti card in her name.?

[~Megan~]

Originally Posted by 1growingsprout

Several things to consider
1. will you have to pay income tax on the amount the original creditor 'writes off' This is very common nowadays.
2. If the creditor allows you to pay off a lower amount how will that be reported to your credit?
3. GET EVERYTHING IN WRITING and keep very detailed notes of who you speak to, times (in your time zone) etc.
4. is you mom going to pay off the bill then you pay her back? or is she moving it to a loan/credti card in her name.?

1. Good to know!
2. I'll ask
3. Definitely
4. In her name and we will pay her the original amount we were paying on the card, ie what we can afford. She will probably pay it all off before we finish though. We will write down an agreement for us both to keep as well

[Tcarwyn]

Several years ago we went through a company called Provanta. We got completely out of debt in 2 1/2 years. Yes they did negotiate lower balances for use, but I think in the end with provanta fee and some of the cc companies added charges (which they werent supposed to do but anyway) I think we ended up paying about as much after all. It was very nice that we never had to deal with anyone calling/harrasing us.

As for the tax on charge offs...we only had 1 creditor do that (out of 6 or so)
As for credit rating...it does show on your credit report, but it seems to not impact your credit rating much if at all...nor does any one seem to care. As sson as everything was paid off our credit score shot up to between 750 and 800...and I think that is pretty good, right?

But, hey if your mom is offering a o% loand and you can PROMISE yourself you wont used credit cards again, I would go for that

Tanya

[mightymoo]

I don't have experience with payoff amounts, but I just wanted to chime in to say if the credit cards you are paying off are still open, and if they have any negative marks on your credit report, don't close them. Your credit report keeps the last 2 years of history on an account, but it keeps closed accounts for 7 years. So, if you close it with bad history, that 2 years of bad history stays on your report for 7 years. However, if you keep it open, in 2 years the bad history will be wiped out.

You may have to actually use it occaisionally though to get them to update hte history, if you simply cut it up and never use it again sometimes they don't update your credit. I had this happen with an old store credit card, I waited 5 years figuring the stuff would be gone but it wasn't, I ended up buying one thing and paying it off slowly (only because it was a store I didn't shop at anymore and I couldn't keep buying things there) just to get my credit updated.

[cdahlgrd]

I don't think I would do that. I have had those miracle 0% transfer loans and cards that I tranferred balances to. . . . . and then I racked up the original cards back up! And because my credit rating was better, I had several huge balance increases!

We later went bankrupt because of that mess.

Be very careful if you do this. When you pay this off the hard way, you learn the discipline and dedication that you need to practice to stay out of debt later. Those are missing in this kind of quick fix cure. ALso, what happens if something happens and you can't pay it back? Will it ruin your relationship? Good family relationships are worth soooo much more than a few dollars and can be completely ruined by money messes!

Not saying this will or won't work, just wanted to give you some things to think about.

[~Megan~]

Originally Posted by cdahlgrd

I don't think I would do that. I have had those miracle 0% transfer loans and cards that I tranferred balances to. . . . . and then I racked up the original cards back up! And because my credit rating was better, I had several huge balance increases!

We later went bankrupt because of that mess.

Be very careful if you do this. When you pay this off the hard way, you learn the discipline and dedication that you need to practice to stay out of debt later. Those are missing in this kind of quick fix cure. ALso, what happens if something happens and you can't pay it back? Will it ruin your relationship? Good family relationships are worth soooo much more than a few dollars and can be completely ruined by money messes!

Not saying this will or won't work, just wanted to give you some things to think about.

We've not used a credit card in over 1.5 years. We don't plan to again except for things you need to have a card for (airplane tickets, rental cars, hotels). I don't think we will have this problem of spending beyond our means again.

As for paying her back, she is not even requiring that we do that but its what we want to do. We can afford to pay toward our debts and were actually doing fine until the minimum payment increases of a year or so ago. At the same time our interest rate went up because dh made one late payment. That put us over the edge. Before that we paid minimums and a little extra when we could. We had a 9% rate which felt pretty good.

[phathui5]

Just as a note, we use our bank debit card for airline tickets, hotels, etc.

[~Megan~]

Originally Posted by phathui5

Just as a note, we use our bank debit card for airline tickets, hotels, etc.

Which is fine if you have enough money in your account to take care of the holds they put on it.

Most companies will "hold" $500 for a $19 car rental or $50 hotel room. While we might have enough money to cover a car rental or hotel room we might not have $500 in the account that is free for them to hold.

[lalaland42]

This bankrate article has info on which rental car companies hold funds. Priceline will also rent cars using a debit card and I don't think they do a hold.

ETA: Call the credit card company and ask them about your interest rate. DH got his raised because of a late payment. I bullied him into calling to see about a rate decrease and they said "Oops, the rate is supposed to automatically decrease 6 mos after a late payment. It must have been a computer glitch." I think that is a load of bull but they lowered his rate 10%