I covered in detail how and why banks settle debt with you, in the prior article in this series. Now, lets take a deep dive into a debt settlement plan, and look at who you could be settling with. You need to know that not all debts are created equal, and that negotiating debt has typically been a strategy best applied to credit cards.
NOTE: This post is part of our Debt Settlement Guide. If you’ve missed any of the previous content, or would like to start at the beginning, please see the links at the bottom of this page.
Your settlement plan can include other types of debt besides credit cards, and I do cover some of that in this article, but I would encourage you to talk over more advanced strategies using the comments at the bottom of this page.
Here are some examples of types of accounts where settling for less than what you owe is most common:
- Bank-issued credit card
- Store credit card
- Gas card
- Signature loan
- Deficiency balances after repossession
- Third party collection accounts
A basic rule of thumb when it comes to settling debt is to focus only on your unsecured debts. There are opportunities to settle a HELOC, or other secured loans, but that is much more situational.
Settling With Your Credit Union May Not Be a Good Idea
Local and Regional Credit Unions are a good example of accounts you may be advised to keep from negotiating settlements with. Smaller credit unions tend to have credit card default and collection policies that deal with members at a very local level. What this can lead to is the credit union only outsourcing collection activity to local attorneys. The obvious implication here is that the risk of being sued are increased, and often sooner than you would be at risk from national credit card banks.
Smaller credit unions also have a reputation of being really tight with the percentage of savings they will offer credit card account holders. Over the years of working with people to settle their credit union debt, i have estimated settlement targets for credit union cards at 70 and 80 percent. Depending on the situation, this type of settlement can still make sense for you, but more often than not, crunching the numbers shows using a hybrid or creative debt consolidation approach to debts with small credit unions makes better sense.
Another concern with credit union cards, when you are not making payments, is how different types of loans have cross collateral elements. If you have insurance products through your credit union, a personal loan, or a car loan, missing payments on your credit card debts with that same credit union can impair other accounts and services at the same bank.
Larger credit unions that operate at a more national level, such as USAA and Navy Federal, do settle like national banks, and at rates of savings that will makes sense to include in your debt settlement plan.
Some Banks are Tougher When Settling Debt
There is an ebb and flow to how banks treat defaulted credit card debts. Each bank sets their own policies for how they manage accounts that become late.
You will see many similarities from one bank to the next, but there can be big differences too. Here are a few things that can change from one credit card to the next:
- How each bank’s internal collections departments handle lower payment offers, and how and when to offer account holders settlements.
- How soon each of your bank’s will assign accounts out to a debt collector, and who those collection agencies are.
- How soon, what types and amounts, or even if, they will sell charged-off accounts to debt buyers.
- How and when accounts are selected for placement with debt collection attorneys with authorization to sue you in order to collect.
After helping people navigate their inability to stay current with credit card bills for many years, I can attest to creditor changes being constant. All of the larger credit card issuers make adjustments to some, or all of the above bullet items. And while this can often lead to frustrations for you, you can still roll with each change and be prepared for any outcome.
Some credit card lenders do not sell debt to junk debt buyers. American Express is the best example of a credit card where the bank holds onto collection accounts, only assigning out to debt collectors and collection attorneys, like Zwicker and Associates, and not selling the legal rights.
Discover has sold debts, but has not been doing so recently.
Bank of America and Citibank all sell debts at different stages, but do not necessarily sell all of their delinquent accounts.
Chase credit cards have traditionally been sold off to debt buyers, but they stopped doing that in 2013. Chase could start up debt sales again in the near future.
All of the major credit card banks will settle for different amounts, at different times, and with changing floors for what is the lowest offer they will accept.
The fact that so much can change when it comes to settling credit card debts can make it difficult to find credible and real time information about settling… so be careful! What you read into an article from 2009 may contain information that is no longer helpful because the reality of settling with your bank has changed since then. Even information posted last year may be incorrect today.
The list of more difficult-to-settle credit cards, at the time this article is being re-purposed for the CRN settlement program guide, is very small. It includes the above-mentioned smaller credit unions and American Express. But Capital One and Discover do make it back on the list from time to time.
One of the main benefits offered to you from this website will be the foundation and understanding of how settling credit card debts at all stages of collection works. A HUGE additional benefit is the ability to interact in the comments and get real time intelligence on what is happening with your creditors.
You can also call in to consult with me, Michael Bovee, for free at 800-939-8357 ext 2.
Leave Small Credit Cards Out of Your Plan
This fact requires some explanation. With the debt settlement approach, you cannot generally settle a debt until you have missed several monthly payments. You will often not realize the best savings when settling until you are in advanced stages of delinquency. You know that an account will generally be close to, or already charged-off, when you negotiate and pay the settlements. But small-balance debts that are not being paid are increasing due to late payment penalties, default interest rate increases (if you were not already paying the higher rates), and potential over limit fees.
Example:
If you have a $700.00 balance that you missed paying last month and must wait until month 5 of consecutive nonpayment to approach settlement, you are now negotiating on an increased balance that totals $1000.00.
Smaller balance accounts are often not going to see the best savings percentages because the thinking from a collection point of view will be “okay, we can reduce the balance and settle for less. We will not accept $350.00. The lowest we can accept from you will be $500.00.”
You see, they are thinking (and often rightfully); “who can’t come up with an extra $100.00 or $200.00 dollars.” I know I would be thinking that if I was owed the money, and willing to take less than what was owed. Especially if my internal statistics show I have success getting paid an extra 100 to 200 dollars on the smaller accounts.
If you include a low balance account in your plan – you are going to be limited in the savings you achieve, especially if you don’t settle it quickly. In some cases, you may end up settling for the amount you owed in the first place. Watch this video where I discuss accounts to include in, and types of accounts to keep out of, your debt settlement plan:
Keeping smaller balance accounts out of your program, and either paying them off in full and retiring the card to the sock drawer until your larger balance accounts are settled, or continuing minimum payments while you address other accounts, can be good planning. This may even help your credit bounce back quicker than had you included the account in your plan. You could get more value this way (more on this below), than you would have from the potentially limited $200.00 settlement savings outlined above.
If you have small balance accounts that are already charged-off (more than 6 months past due), you should look to settle them as the damage to your credit, and the balance increases, have already occurred and typically cannot be undone. These smaller balances will either be targeted as early priority for settlement, or given less priority depending on other accounts, those balances, who the creditors are, and the stage of delinquency the accounts are in. Prioritizing accounts that are more likely to get aggressive with collection efforts will often be better for settling sooner than others.
Balance Transfers, Cash Advances and Large Purchases
As a general rule, accounts that you have made recent balance transfers to are not accounts that should be prioritized for settlement, when the amount transferred to the card makes up more than 20% of the total owed. Here are three creditor policies to consider when negotiating accounts that have recent balance transfer activity:
- Not approving any settlement at all.
- Offering a reduction that may be twice as high as would have been the case were there no balance transfers.
- Approving settlements when balance transfers occurred at a minimum of more than 12 months before you stopped payments (some creditors have been known to refuse their best settlement offers using a 24 month balance transfer policy).
Similarly, if the account has had a large volume recent purchase activity exceeding that credits set percentage of the current total balance, creditors will often dig their heels in at settlement time. By digging in I mean not allowing settlement of any kind, or only offering balance reductions that are not what would have been on the table had there been certain recent purchase behavior. This policy, if applicable, can often be averted by waiting to settle with an outside third party collection agency, or a debt buyer.
Also know that some credit card bank policies do not allow settlement if the account was opened too recently. The timeline for settlement on established accounts can be set at a year to three. But as I mentioned earlier… things change. Once upon a time, a couple of the larger banks would just not settle accounts for less than 60 and 70% if the account was newer than 5 years! That was many years ago, but that type of policy returning with some banks is not a stretch.
There are instances where your personal hardship can qualify for exceptions to some of the tough creditor policies outlined above. If you recently suffered a major health issue and will not be able to return to work soon (or at all), is a good example of what may help overcome creditor objections to offering the lowest available settlement, even when you have triggered a red flag.
Be sure to post details about any account you have concerns with in the comments below.
Keeping Credit Cards Open
Settling credit card debt is often described as an “all or nothing” way to get relief from overwhelming debt. Many debt settlement companies advise you enroll all of your credit cards into their debt settlement program. Even credit counseling agencies offering debt management repayment plans will often require all of your unsecured credit cards to be enrolled. And there are some good arguments for taking the all or nothing approach.
With debt settlement, all or nothing can bounce back and hit you in the pocket, if you try to settle the wrong accounts. But are there concerns with keeping some accounts open while still settling other debts?
There are benefits to keeping some accounts open. Not the least of which could be a later boost to your credit score.
Your credit score is factored using many data points. Having open-ended revolving consumer debt (credit cards), is a healthy part of your credit report and credit rating. If you’re in a position to need to settle all of your credit cards, you’re going to lose the benefit of having open and active revolving accounts in your credit profile. This is not a big deal, because you can acquire new credit cards after the debt settlement “dust” settles. But having one or two accounts you can pick up and begin using responsibly would mean:
- The credit damage from settling debt may not be as severe for you.
- You may find your credit score improves more rapidly after all of your other debts are settled.
- You may not have to look for alternative plastic, like secured credit cards, as a credit rebuilding step later on.
If you have the option to keep some accounts open while settling other cards, but are wondering which ones to keep, post in the comments below for feedback.
Warnings About Open Credit Cards When Settling Other Debts
Okay. There are benefits to keeping accounts open if you have to settle other cards. But I need to talk to you about some drawbacks. And these are not warnings to take lightly. The amount you can save from negotiating a settlement can be impaired.
If you elect to hold an account out of your debt settlement program, you will generally want to choose one that has a low-to-no balance. This makes sense because you’re likely trying to settle your larger balances. But there are concerns when you keep other credit cards open.
- If you have more than one credit card from the same bank, and are trying to settle the larger balance one, while thinking you will keep the other account with a low, or no balance on it, think again. Your creditor may close the account that you’re not using because they see that you are struggling to pay the other account with the higher balance.
- If you’re using credit cards while settling accounts with other banks, that fact can be seen by a debt collector who is paying attention, and taking a hard look at your recent credit report. Your credit card trade lines are updated to show recent balance changes, recent payments etc. A debt collector’s interpretation of what they see in your credit report could impact the settlements you seek on other accounts.
- The credit cards you are trying to keep open could have the credit limits slashed, or closed, by the creditor, even if you do not owe anything on the account. This is because your credit card banks often perform periodic reviews of your credit report. If they see that you’re not paying other credit card bills, they view you as an increased risk of defaulting on payments to them. Banks will often manage that risk by closing accounts, or dropping your available credit limit to what you owe on the account.
Are there legitimate reasons to keep a credit card out of your settlement plan that you continue to make timely payments on? Yes, and there are legitimate talking points you can use later when negotiating other debts. One of the ones I have had to repeat over the years when I am working a file is “My client is a small business owner. That account is for business purposes only and is paid from the business account”. Another example would be if you had a family member use the account because they needed to. And they are the one that is paying the account each month.
Keeping some of your credit cards open and out of your debt settlement plan is doable, but identifying which ones to keep is often limited to the ones you have little to no balance on. Keep open credit cards in a sock drawer (maybe someplace safer), and do not use them again until you have settled your other debts.
For you DIY-ers, if you have accounts with large balances that you continue to pay, while others go unpaid because you are going to be settling them, have your talking points about the open accounts at the ready. It’s highly likely debt collectors will bring it up.
Please continue with Debt Settlement is Like Running in a Race in the next section of the CRN Settlement Guide.
All readers are welcome to post questions in the comments below for feedback, or to join the discussion with your own specific tips and preferences for choosing accounts that you keep. If you have an oddball situation that you want to talk to me about you can reach me at 800-939-8357, press option 2, or submit a consult request form.
This Debt Settlement Guide includes:
An Expert Guide to Credit Card Debt Settlement
How and Why Banks Settle Credit Card Debt with You
Types of Accounts to Include in Your Debt Settlement Plan (you are here)
Why Settling Credit Card Debt is Like a Race
How to Settle Credit Card Debt Quickly
How to Talk to a Debt Collector
How to Negotiate Credit Card Debt Successfully Yourself
7 Largest Credit Card Banks and How They Settle Debt
Get Debt Settlement Letters and Agreements from Collectors
Paying Debt Collectors After You Negotiated a Settlement
When you say keep a credit card open with a low to no balance, do you actually mean the amount of money owed or do you mean the percentage of credit utilization? For example, which card would you advise me to keep open?:
CC#1: $500 credit limit, 100% utilization
CC#2: $3,000 credit limit, 50% utilization
I mean the actual balance, not the utilization or credit limits.
I would try not to fall behind on balances of 1500 or lower, if I could help it, and I know that is not always possible.
I have a Am Ex credit card with 15k balance that has no activity in 5 yrs, and I have had no contact with them or discussions. I have recently been offered a settlement for 3k by letter. I have another CC from 5 years ago with 7K balance in same status. Two other CCs are either 0 balance or never behind. My Morgage and auto loans are perfect. I have not applied for any loans in 5 years, and haven’t disclosed my employer. Is their any benefit or drawback to settling the debts? Or should I wait until the debts expire from my credit report? Does the last activity date reset once you make the settlement payment?
What state are you in?
If you settle it does not get a fresh date to report from on your credit. These would still age off your credit in 2 more years (at the 7 year mark).
But the state you live in will tell me if you can still be sued for collection.
After being laid off and unable to find job for almost 2 years debts started piling up. It wasn’t so bad since I had good savings but it added up to 10K quickly. After I finally got a job, first thing I did was to consolidate my debts with Wells Fargo. This was in 8/2014. I had decent monthly payments and was financially stable again. But between the end of 2015 and throughout 2016 we had to deal with medical related expenses; and I ended up undusting my credit cards again and using them, I’ve had to get really creative with paying bills and either I’m behind 2 months with utilities or I’m behind with the credit card payments. I tried to refinance and extend the loan I had taken back in 2014 to add the new debt, but the bank denied it. At this point I made the decision to enroll with NDR for debt settlement but after reading this blog, I’m terrified about the idea of being sued or garnishment or levy… I’m wondering if this was a good decision or if I should try to get a personal loan place else or even settle 2 of the cards and enter a hardship program with the bank? My total debt if $13500, 3 credit cards and one personal loan; I’m 3 months behind with Synchrony ($2,800)…thought I could settle with synchrony with the income tax… Also, my employer’s bank is Wells Fargo reason why I’m afraid of garnishment while under the 36mo debt relief program.
Thank you!
Could you afford to pay about $260 a month? If so, enrolling in a credit counseling program may be a better alternative than debt settlement. You will pay back your balances, but at a lower rate, and with a fixed payment.
If you cannot afford to consolidate your credit cards, I would then look at settling for less. What are the balances on all 3 cards?
I can afford $260 monthly, but the Synchrony Card has a balance with a promotional offer that expires in 6/2017, a credit counseling agent told me I couldn’t add the synchrony into the program because it has a promotional offer and gave me a monthly payment of $267 (Excluding the Synchrony, which will enter into 29.99%APR in June). To answer your question, I just looked at the accounts and this is the outstanding:
Synchrony $2397; Chase $1000, WF $2401. WF Loan $7802
Ask if you can add the Synchrony balance in after the intro rate expires. That is sometimes possible. You may need to make a few payments on the Synchrony account yourself, if you go that route, to keep the account from charging off. You could also consider settling it, and having the other accounts in a DMP.
Ok. How long do I need to wait before negotiating a settlement with synchrony? Im only 3 months behind.
I typically target Synchrony settlements just before 180 days late, or directly after.
Michael,
I have to say that your website and YouTube tutorials have been of great help to me and want to share my success.
After speaking with 2 different Debt settlement companies and 3 different credit counseling agencies, I decided to try to deal with the creditors myself. Mainly because none of the agencies were able to include ALL outstanding debt for one reason or another.
The monthly payments I received from the Credit counselors plus the account that was left out for me to deal with ranged from $333 to $388 a monthly (good deal, considering I have been paying $454/month for several months now).
I started by reaching out to the bank where I had the largest debt (WF), this was the hardest bank to deal with for one reason or another. I took many hours on the phone with several departments and agents. For each call I made notes of the date and time, name of representative and possible options/offers they were giving me. Every time I called I’d use that information to get on track with my request.
Long story short, WF agreed to reduce the current interest of 11.49% to 1% on the Personal loan and from 21.34% to 10% on the credit card. Synchrony agreed to waive ALL late fees and keep the account at 0% APR and entered in a payment plan. Chase reduced to 7.3% (I didn’t close chase since it’s my oldest credit card and the one with the smaller debt, but still got the APR reduced!!!)
The total monthly payments for accounts will be $282 and will be paid off in the same time proposed by Credit counseling agents…56 months.
I’ve received in the mail the approval letters for all creditors, only waiting for the WF credit card since they finally came to “verbally” approve it yesterday.
Nicely done Zoe! Congratulations with setting those up.
That is a very hopeful story! Imagine making the negotiation happen successfully to low or no interest!!
Hello Michael,
I sent you this through the contact page and you asked if I could leave it as a comment here to consolidate things.
I have a number of debt issues, but am looking for advice mainly on just one today. My background is: I have over 300K of debt, most of it federal student loans but MUCH of it either private loans, credit cards, a few charged off bank accounts, etc. I don’t think the precise credit managers and original creditors matter too much, as you can see there are many accounts going on and my question isn’t related to any one account.
I am in a situation where I can make payments on some of these accounts, maybe $400/month total, spread between different accounts. But I have so many debts, and am not sure of the right strategy of what to begin paying off first. I ask specifically because some of the debt collectors who own my accounts now have sent letters offering different payment plans where a reduced monthly payment will be accepted for a certain fraction of the debt (a settlement over time). If I could arrange an 8-month plan where I pay $77/month or whatever, that would wipe out a few of the smaller debts.
Should I focus on trying to pay LOW amount accounts first? (Say, a store credit card where I owe $500.) Or, should I make those payments on HIGH accounts? (Say, a card where I owe $14,000.) I want to know if it would best benefit my credit or be in my best interests to pay down SMALL debts first (as then they would be marked “PAID”) or LARGE debts (because they are large). What would the consequences of being able to pay off small debts be? Is there a certain TYPE of account I need to pay off first? (Charged off bank accounts, credit cards, private student loans, etc…)
Please advise.
Take out the federal loan balances. What is the total of your debt now? For how long will you only have $400 extra dollars a month to try to resolve this remaining amount of debt?
If you are late on payments already, by how many months?
List who the accounts were originated by, and if a third part debt collection agency is contacting you, who that is?
It can often be more important to settle with who is the most likely to sue first. I can help you organize your debts when I know who you are dealing with.
I was able to settle my account with Midland for $700 on a balance of $837. Better than nothing!!!
I have two accounts with Comenity, one totalling $1,350, and another $650. The balance with Synchrony is $750. I am currently paying just the minimums. How should I approach debt settlement with Comenity and Synchrony Banks? Should I stop paying them to incur a debt settlement offer? How much reduction in total percent should I target/expect?
I typically target settlements with Comenity and Synchrony at 40 percent of the balance owed. You have to factor in the fact that you will be paying a percentage based off of the balance owed at the time you are negotiating the lower pay off. In order to get to the point you are able to pay the lowest reduced amount (the 40% I would target), you have to be late with payments by many months. That is often going to be 5 and 6 months late. That can mean 35 dollar late fees, and shortly after that 35 dollar over the limit fees. And in the third month you can experience default interest rates. All of this causes a small balance to inflate rapidly, and to the point that you could end up paying what you owe today when you settle.
You will also want to factor in the credit score damage this will cause, but for what amounts to not much in savings.
It is what it is when you cannot afford the minimums any longer, but if you have alternatives to continue repaying, I would focus on those before falling behind on low balance accounts in order to settle them.
I have my name in a business credit card. My credit reports (attached to my ssn) don’t show that I have that credit card. It looks like it is attached to the business, probably the TIN of the business. I did this to help a friend. She owns the company the business credit card is on. I don’t belong to that company. Since she is not making some payments I was wonder how can I get out of this. Can I just tell American Express I don’t belong to that company or what other thing I can do if possible to get out of this situation? The amount owed is close to $11,000 and the card is frozen after my request. Right now is being paid in time, because I made a payment, but I don’t want to keep paying it and it doesn’t affect my credit as nothing shows up. Thank you for your advice.
It sounds like you personally guaranteed your friends business account with American Express. AMEX is not likely going to let you off the hook for the account. I suppose the business owner could try to take over the personal guarantee. It is worth looking into, but I am not optimistic.
If your main concern is your credit reports, you will have to make all agreed payments. AMEX may not appear on your personal credit reports now when everything is ducky, but can show up later as late payments.
Thank you so much!
We have been having financial hardship for the past 3 years. My tax returns can prove it. Not that the banks care or do they? I tried to play the balance transfer game back and forth with my own cards and my wife’s. We really tried to stay current with all the cards. But, finally starting end of last year, we used up all our savings and business completely failed. I have been using my credit card to live and pay mortgage, car payments, and daily expenses. One by one the credit card started to MAX out. By next month, all my cards will be in default. The first card I stopped paying is now about 140-160 days late. I have a few that I tried to keep current on. I really thought I was going to pay this off by selling my home. At this point, I don’t think that is a good idea. I have to keep a roof over our heads and try to make ends meet. I really want to settle because i have never been in debt. This overhang is killing me..
Banks do not care about your hardships.
I am impressed with how much reading you have done throughout the site this past weekend. You have done exactly what I wish so many readers would do, which is read the different article series and post questions along the way as the come up. I think you posted 9 times on different pieces as you read through them.
I really do suggest you call in for a consult in order to get a handle on where you are at today, and what you can do to manage your way through the process from here. You can call the hot line and press 2 to get to me.
Hi Michael, I am desperate for info. My wife’s small business is folding. She is left with about $60K in Amercan Express debt that we cannot possibly pay. I am sure even though it is a business account she is likely personally liable. Should we stop making min. payments now and call AMEX to try to settle for less citing bankruptcy as our final resort?
I would encourage you to read up more on how debts with American Express get settled. There is a reason I rate AMEX last for settling debt. It is highly unlikely you will be settling with AMEX.
Settling American Express credit cards is usually going to be done with debt collectors.
Read those two articles and post any follow up questions or concerns you have in the comments. I would not attempt to call AMEX to settle with them directly.
I had been paying Dell an automatic payment $52 that they took out of my checking account each month for the last 2 years. All of a sudden they stopped taking it out and hadn’t in the last 3 months. I called them and found out that I was suppose to contact them after the 2 year deadline and renew this. If they told me that originally I sure missed that info. Now they have turned in my account balance of $3200 to a 3rd party -Portfolio recovery! Now what? Would they settle a less amount? How much % to offer. I might be able to come up with a little lump sum. Credit is ruined anyway. Please offer suggestions. I have received nothing from this 3rd party yet. Just found this out today when called Dell
Fifty percent settlements with Portfolio Recovery are fairly common. Sometimes you can realistically target lower deals than that. What can you pull together in the next month or two?
Do you have any other credit cards or accounts showing as unpaid on your credit reports? Sometimes the more it looks to a debt collector like PRA that you are struggling financially, the lower deal you can get them to agree to.
I know I can come up with about $800 right now. Not sure how much more but that is a solid figure as of right now. Have no other credit cards. Paid the others off approx. 6 months ago after working with a debt management company. Dell would not go through them, Care one credit is who I used. I tried adding them too but Dell refused. I had payments set up with Dell for the $52 a month and thought that was an ongoing thing. I just want to get this bill paid and over and done with!
Portfolio Recovery is not all that likely to settle for 25 percent on a debt they just got. And with little to now unresolved debts on your credit reports, they do not often get to 25 percent at all.
Can you save up more over the course of the next few months?
Late 2013 My family ran into some hardships where my wife had to travel 1300 miles to take care of her dying father. She lost her job, I just went through a job change, and had to change jobs again to accommodate her not being around to help with the kids. After about a month we were all back together but our finances were a mess. She has since gone back to school and I have a decent job, but we have just gotten to the point where the mortgage and cell phone bills are being paid on time. None of the credit cards have been paid for a year. We were just unable to do it. The amount owed is $4500, $1500, $1100, and $1000. I want to pay them properly but can’t. I really need to know how to settle these accounts and not have anything negative on my credit going foreward. We were just getting our credit in the very good/excellent rating when everything hit the fan.
There is no silver bullet to settling credit cards and getting the negative reporting removed from your credit. Negotiating settlements on all of those cards that you have not paid in a year; paying the settlements you get; having your credit reports updated to show that you no longer owe anything on those collection accounts, is the realistic way to move forward from here.
Your credit can heal in a shorter period of time than you may think, even with paid collections on there.
What are your credit/finance goals in the next 12 to 24 months?
Who were those credit cards with? Who is collecting on them now?
What amount of money can you pull together to settle those collection accounts right now, or say, over the next several months?
I got a summons to go to small claims court, but it was the 1st day for my new job, so I didn’t go. What should I expect?
It is likely that you will end up with a default judgment against you, and that will also appear on your credit reports.
Who was it that sued, and for how much?
Great! Not a problem. I would love too.
Last question, is there such a thing as negotiating with the collection agency to report that the account was “paid in full” even if I only a paid a portion/settled? One collection agency told me on the phone they were not able to mark it as “paid in full” because I am choosing not to pay the account in full. If that can be done, what would be another way to ask that? Would that be the same thing as deleting negative information on my account?
Thanks, Michael!!
It is rare to get what is called a “pay for delete” when you are settling or even paying in full.And paying in full when collection accounts are already charged off is really not any different that the account showing as settled on credit reports. The key is that your report is updated to show you now owe zero.
My advice to people when it comes to using debt settlement and credit reports is not to get hung up on it. Monitor your credit to be sure anyone you settle with updates any credit reporting they are already doing, but let time and smart credit use get you where you need to go from there.
I called and the bank said they still own the debt and proceeded to tell me the which collection agency to go through and their phone number. This company corresponds to the latest collection letter I received in the mail which offered different settling plans.
Perfect. Now you know the collector you are dealing with is legitimate and the right one to pay.
I am curious about the different settlement options that are spelled out in the offer letter you received. Maybe you can post the creditor and debt collectors names and settlement details when you have this one all wrapped up? It will help others looking for information, and who have a similar set of circumstances.
Thank you.
There are 2 companies requesting a settlement for my debt. Who should I call first to settle? The latest time stamped company?
Accounts in collection can change hands. Settling with the right collector could be as simple as contacting the last one to write or call you. I would encourage you to call your original creditor and ask who they have the account out to for collection currently. If the bank still owns the debt, they will tell you. If they sold the debt, ask to who, and lets go from there.
Hello,
I have an credit card account that has went into collections in 2012. It’s been a while and unfortunately I haven’t paid anything to them. They offering for a settlement. Is it wise to pay them for the settlement or keep saving to pay them in full? The account has already shown negative information on my credit report and has effected my credit score greatly. Would it make any sense to still pay them in full if it already has shown on my credit report. This is the only bad standing on my report.
Thank you.
Settling now would likely update your credit report and allow you to start making progress improving your credit.
Taking longer to save up and pay in full means delaying the credit report update and waiting to start improving your credit.
Settling makes more sense if your credit reports are your main purpose for doing so. But by choosing to settle the credit card debt now, you also eliminate the risk of being sued for collection.
Would it be better to settle rather than pay in full? My account has been in delinquent for years now, so I my credit report and score has already taken a hit. Would it make sense for me to pay in full now that its been so long? Or can I settle and ask them for all negative information be taken off?
It is unlikely you will get any major creditor to remove a negative from your credit report in return for payment. And that goes for any amount of payment. Whether you pay in full, or accept a lower settlement offer, the credit card will be updated to show a zero balance owed on your credit reports.
My experience is that there really is no discernible benefit to your credit between paying the full, or a partial amount, on debts this old.
Florida
I cannot thank you enough for your insight and time!
4) This is what I am looking at in debt settlement order:
Target Store Card–Already paid off (Paid it yesterday–got hit with a late fee and realized this makes no sense. I got them to waive the late fee and paid the balance.).
That makes a lot of sense. I would put that card in a drawer and not use it for some time moving forward.
Okay–here is what the site was not allowing me post. I am just going to retype it all.
Plan of Action-Stage 1:
1) I plan on knocking the Capital One cards and Discover first since they are more sue-happy.
2) Depending on Discover’s offer (60/60), Chase may be here, too.
2nd/3rd Stage:
Higher Priority-
^Chase depending on above
Citi??
Barclay??
Lower Priority-
All remaining cards
Questions:
1) Are there any of my cards that should I list as “higher priority” for 2/3 stage collection?
2) Where should I put USAA in this mix?
3) Have you heard of USAA offering any hardship plans like Discover?
That should be it! You have given me so much great knowledge to move forward!
Secondary high priority, if I were in your shoes, would be Barclay first, Citi second. But you may need to be flexible with how you sight each target after accounts charge off and are placed in the collection pipeline.
When it comes to prioritizing your settlements in second and third stage collections, you are going to have to be somewhat reactive, while being proactive. Let me explain this a little here in the comments (but this exchange is now the motivation for me to finish a section of the site).
Contingency collectors work your file for as long as each creditor contract is good for. If they do not collect anything, accounts will go back to the original creditors. When you are dealing with known contingency only collectors, you can often leave some of them to cycle in and out of new collection agencies, or even for that debt to later be sold.
When collection accounts are sold, your risk of being sued is not necessarily diminished. It is sometimes increased. So you may need to adjust priorities on the fly.
Debt settlement can be highly predictable. The picture of what to, and when to, is really only fuzzy when you do not know where your account is going to land. Once it lands, you can make decisions. With this many accounts, and the limitation on resources, you are going to be making a lot of decisions along the way.
One thing I will point out here, that is something I have failed to cover in good detail on this site, but have touched on in national articles, is how to deal with debt buyers in a preplanned way.
Contrary to what you may read about elsewhere, debt buyers can be embraced as part of your overall solution. And that is because they can work with you in a more flexible way than original creditors, and often the collection agencies working for credit originators.
Example: Many of your accounts are going to be sold. If a large debt buyer picks up, say 6 of those debts, you may be able to negotiate balance reductions and longer term payments (sorta like the Discover 60/60, but much shorter), while still leaving some room in your monthly cash flow to resolve the other debts.
There are debt buyers you can work with in this way. They tend to be the larger outfits. I am going to cover this in much more detail now, and long before you will hit that stage.
I am not aware of USAA offering plans like the 60/60. The outline for that type of repayment plan exists in federal bankruptcy law changes from 2005. Nearly 10 years later, Discover is the only one I know of that has done much with the option besides some fledgling, and halfhearted pilot programs from originators.
USAA may offer a monthly plan that amortizes the balance over 60 months. But even if they eliminate the interest, that is 120.00-ish a month. Which will be debilitating to your overall efforts.
I have USAA in front of Barclay, and even in place of Chase if that is an option pre charge off.
What state are you in?
**it is not allowing me to post this in full, so I am having to break in down into multiple posts** It says “error-page not found”
1) USAA- I do have car insurance through them. I have already priced elsewhere and found I saved a whole $10 going through USAA. So, it is not a deal breaker. I know they will cut off the relationship until they are paid in FULL. It is what it is.
2) Yes, I really don’t want to be sued (I know I am asking for it!). So, going after Cap. 1 and Discover seem reasonable. I have read about Discover’s 60/60 plan. I hope they offer it to me. While it does not save the most $, I will have less to pay out front, which will allow me to move to the next creditor!
3) I am worried about settling many of the smaller cards and the bigger cards refusing to settle afterwords. But with SO many cards, maybe it will work out.
I would move the auto insurance now if it were me.
You have to be realistic about the fact that you are likely to get sued. But it can be managed, and often without a judgment. You will be better able to meet that challenge with creativity for your overall debt settlement plan when sued by a debt buyer, rather than an original creditor.
Let’s see if Discover talks to you about the 60/60 plan.
It would say it is unlikely that any of your creditors will flat out refuse to settle, if the timing is right, and the accounts are not really new with recent purchase patters that trigger some alarms for them. In fact, the fact that you have so many accounts to contend with is going to be one element that plays to your negotiation strength at least until you have more than half of them settled.
First, I would like to give you heartfelt thank you for all the time you have spend typing this up and helping me. I am beyond appreciative. It has helped me tremendously.
Honestly, I don’t care if I have ANY left after this. I am struggling to juggle household bills, student loan payments (private), and so forth. I would be OKAY with no extra C/C bills for a while. You know?
If I had to choose one of the smaller cards, it would be the Target Visa.
I do not see our household income improving dramatically within the next 2 or so years. I am kind of stuck now that I am the caretaker of my mother with Alzheimer’s. My husband works and he is not eligible for an increase in salary until August 2016.
I am not looking at getting any “new” credit for a home or anything anytime soon. Husband and I are still young, so we have plenty of time. Looking at upgrading our home in 5-7 years, if not longer. So, I am expecting to have to re-build my credit completely and have the time to do so.
Keeping a card out of any debt settlement plan is something I cover in more detail here: https://consumerrecoverynetwork.com/keep-credit-card-open-when-settling-debt/. With your situation, I would pick the card (sometimes two) you know you would use after this is all over. Target makes sense as they are a diverse store; do not settle for the best rates anyway; the balance is low; and can be paid off in full right away. If you want to keep that account open, I would pay it in full, and then put in a drawer.
I am going to reproduce your list of creditors and how I would view them as priorities for settling in first and second stage collections. I will have that up tomorrow for you on this page.
As far as rebuilding credit goes, you look to be on a 4 year timeline, but there are changes that are occurring with how paid collections are treated by FICO as we speak, as well as other things afoot, all of which can shorten your credit recovery horizon. But enough of that. You have the right perspective… credit-schmedit… that is the last thing you want to think about.
Thank you! I will greatly appreciate it.
Did I miss the list you were going to post with priorities for 1st/2nd stage collections for my creditors?
My email has been wonky, so I may not have gotten the notification.
Thanks a bunch in advance!!
It happens sometimes that I write comment reply, and then too quickly go about something else in the back of the site (where I am when I post replies), and it somehow causes my reply to not post. I think that is what happened the other day when I replied (no way to forget that reply as it was long-ish). So… not your email acting up this time.
I will re-reply later this evening. Sorry for delay.
All of your credit card balances less than 1k:
I would just pay this Target Department Store card at 132.68. The monthly late fees will double this debt before the account charges off.
Target Visa credit card $498.29 will settle at 50% based on current trends.
WalMart credit card serviced by GE Capital $293.59; Old Navy Store card with GE Capital $473.08; Sams Club with GE Money at $675.79; JCpenney department store card (GE) $882.74 – I generally target GE Capital settlement in first stage collection at 40%. This target can change from one debt collector working for GE, to the next, after charge off. More on settling with GE serviced accounts below.
Capital One credit cards with balance of $298.53, $405.81, $458.70 can be settled at around 50% pre charge off, and with collectors immediately after that. Because Capital One will sue over 400 dollars, they will compete on your priority to settle list.
First Savings card at $296.83 is a low priority card, with lopsided math that will likely mean no financial benefit to settling.
First National account with a balance of $348.98; First Premier Card $399.34; Comenity Bank (is this a branded card) at $427.56; Barclay Bank $479.29; Paypal account with balances of $496.85, $599.23; Credit One card with a balance at $632.13; First Premier Bank cards at $697.44, $698.38; Amazon Store card with a balance owed at $698.72 – All of these accounts are like first savings, lower on the priority list to settle in first stage collection, but settling later will not provide much financial benefit.
Those 20 credit cards total about 9,900 dollars. As I pointed out in the article, and briefly on the other page, it would be ideal if these accounts were not part of any debt settlement plan. But it is what it is if you cannot pay.
The rock meet hard place part of this is not just the math of settling inflated credit card balances later (where there is almost no savings benefit). There is little room left to be creative in the ways you can navigate not settling these smaller accounts because of the way it diminishes your ability to save and settle larger credit card balances. But also because the rate of savings, or even if you can settle and save other priority accounts, can be impacted by the appearance of many other accounts being paid on time, while the ones that are best targeted for settling are not.
Here are your accounts over 1k:
Credit One $998.87 target settlements at 40 percent, but not in first stage collection.
Merrick Bank $1,018.36, Dell Financial $1,069.72, Tires Plus $1,111.82, Kay Jewelers $1,255.86 – all are accounts that I would look to settle the same way as Credit One bank, and are not the priority use for available cash flow in first stage.
Capital One credit cards at $1,497.82, and $1,511.35 are targeted for the same settlement amount as the lower balance cards above, and you have the same lawsuit risk exposure. So… with 4 Capital One credit cards, using available funds to settle these prior to charge off can make sense from a lowering risk perspective, not necessarily from the using available resources to knock down the most amount of debt angle.
Jcpenney (GE) $1,663.00 can also be lumped together with the other GE Capital credit cards above and viewed strategically as a way to settle many accounts in the first stage of collection with the same servicer. I would personally not use this reasoning in any way to elevate GE as a priority creditor to settle with in first stage collections, but see the attraction of trying to get that many accounts knocked down with the same creditor, and before the debts are dropped into the collection pipeline where some will be sold, and others sent to many different assignment debt collectors. This will add perhaps a half dozen new entities into your debt settlement plan (after the accounts charge off see this report).
Carecredit (GE) $5,172.26 is also with GE Capital for servicing, but I have set this one aside for a couple of reasons:
1. You would not have enough money to deal with all GE serviced credit cards in one big effort if this one were included.
2. There was a large settlement with CareCredit about their credit products last year. Depending on whether your account can be considered as part of the settlement group, I would let this one set as less a priority.
Discover $3,999.00 I would target at 40 to 50 percent settlement. This account, along with your Capital One cards, is a higher priority from the risk of being sued side, not the bigger bang for available settlement dollars perspective. If your aversion to being sued is so high as to tip the scale using it to make all priority settlement decisions, you would likely want to look at settling with Discover and Capital One first, while allowing the rest to be settled in second and third stage collections (with collection agencies and debt buyers.
Citi $5,799.40, and Citi $1,198.34, are accounts you could knock out with the money you will have saved up in the next 5 months. But the settlement amounts could be 40, and even 50% depending on the type of accounts, length you have had them, other factors.
Chase $5,994.49 is targeting 40 percent with the settlements they approve prior to charge off. But if your account (not a new account, or balance based on cash advances, etc), or you personally (the way you handle yourself) can meet the challenge, I still do see some deals get done with Chase where they agree to something along the lines of 30-ish percent prior to charge off. If you were able to the best deal from Chase, this would be an account to settle with first, along with knocking out your lowest debts listed above. This is the approach I have coached heavily towards over the years – settling credit card, and other debts, with a priority towards which will save you the most money, letting the stingiest creditors and debt collectors wait.
USAA $7,000.30 balance… before getting into feedback about USAA, do you have ANY other accounts with them, or even insurance products?
Barclay $8,399.50 credit card balance I would target at 40 percent settlements. This is also a creditor who took a break from suing as much at the peak of the recession. I am seeing more Barclay lawsuits this, and some of last year. This risk concern does not reach to the same level as Capital One, or even Discover.
If you absolutely cannot add any additional cash to the settlement savings war chest, and based on the information on this, and the other thread, you will have 4500 on the low end to work with (when choosing who to settle with before charge off).
When you start looking at what your settlement plan is going to look like after charge off, you will need to have even better organization skills than what you would have to have to maintain these 35 accounts for as long as you did.
You will have some benefits and drawbacks to consider in later stage collections. But before looking at what those could be, what are your thoughts, concerns, and inclinations after this feedback?
Every time I try to reply, I am getting:
Not found, error 404
The page you are looking for no longer exists. Perhaps you can return back to the site’s homepage and see if you can find what you are looking for. Or, you can try finding it with the information below.
It will not let me post put a few sentences at a time?
You changed the email you use to post with. That may/may not be the hang up. Now that you have that email address approved in the system, see if you can post without those problems. If that is not the fix, I see some updates for the site need to be done. Perhaps after those are completed….
I have the comment settings real tight due to how much auto comment spam the site gets hit with everyday. Sorry if this causes any frustration, and thank you for letting me know the issues you see on your end. It helps us manage the site better 🙂
Still doesn’t work! But–it may have something to do with copy/paste? I was using Word and copied/pasted. Not sure!
And I completely understand the spam thing!
Continuing exercise from other page: I definitely can see how the smaller debts would not be ideal settlement accounts.
Unfortunately, about 1/2 of my CC debt is in the form of these smaller cards. With the recent loss of 1/2 my income, I cannot continue to pay the smaller cards’s minimum AND save $ up in hopes to settle the larger accounts. Every direction I turn has its own problem it seems!
Let’s start looking at this challenge in bite sizes, and we can follow that up with some creative ideas to navigate all of this.
Which credit card balances that are less than 1k would you or your husband identify as accounts you would like to have and use after all of the debt settlement dust settles?
Every debt relief option has build in benefits and drawbacks. All you can do is set yourself up for the best success possible, and than roll with the punches, and maneuver by making good decisions along the way.
Hi Michael, I have an account with a credit card company for more than 3 years,unable to make a payment due to my disability, I’m getting SSD now and I would love to settle with them, but I don’t know how, I owned 1000 dollars but I just have 400 dollars to settle, how can i do this?
Thanks
Raida – You may be able to settle that collection account for 40%. Who was the credit card with originally and do you know who is collecting on it now?
HI Michael,
this is a different Mary than above. 🙂 You answered some of my questions on another topic but my question here is, it states above that the creditor will be watching my other accts to see if I am paying on them and probably won’t be willing to negotiate as much if others are getting paid and not them. The 2 accts that I am in need of settling are a BLOC and a personal CC with Citibank (both at 40K) which are both ONLY in my name. My husbands name is not on either of those 2 accts. I have a couple other cards with low balances (target, kohls) that are in my name and I am making min payments on time. We also have an Amex card in his name that we are current on and trying to pay down balance of $2500.00. Will his credit be effected by any of this? I have stopped using my CC’s, but can he continue to use his? He has to use it for business purposes that get re-reimbursed. Thank you so much for all your guidance!
Mary – Your husbands accounts that are completely separate from you will have no impact on him. He can use his cards and continue to pay on them.
You can talk your way around small balance accounts being paid on time, while larger balance accounts are not. You need to be prepared for that to be brought up in any negotiation though. How you respond to something like this will vary based on the person, the types of accounts, and the balance sizes.
What are the balances and payments on those cards you are still current with?
They still have it. Approaching a year since first missed payment. They have offered about 75 per cent for settlement. It’s in their “Legal Front End Dept.” I still talk to them once or twice a month.
I have been able to settle 4 of 5 accounts within 8 months of first late payments. Things went pretty much just as the CRN folks said they would. I chose to keep a couple of cards open. One was closed by Chase because I had 2 of their cards to settle. Another had its limit lowered and a third has not changed at all.
I rarely use them, but I do make sure that they have some sort of balance on them. I make current, minimum payments towards these. It seems to help the credit score by have accounts with some “age” to them still active on the credit report. These were never brought up while settling the four cards.
Now, if I could just somewhere with Crap One.
Charles – Thanks for sharing your experience with keeping some credit cards open and how those accounts were impacted/not impacted from settlement on others.
Who is it collecting on your Capital One account now?
Thanks for all this info.
If the banks will often close our accounts anyway when we stop paying to begin the negotiation process, is it better for our credit history to close those accounts ourselves before they do? I’ve never found any info on this idea, but it seems like a negative for an account to be closed by a creditor. I just paid off several accounts that were small and not desirable to settle (Amex/Discover) and I’m wondering if I should go ahead and close those or leave them alone…
As for the accounts where I still owe money, if I stop paying and try to wait out a settlement for 5-6 monhs, is there any benefit to keeping the account open rather than closing it myself? Are they more or less likely to settle with me?
Thanks!
Mary – Great question on closing accounts in a proactive way. No & No.
Closing accounts you owe zero on would mean killing accounts that can later help your credit report and credit score recover faster. Any cards you paid down/off should go in a drawer and should not see daylight until all of your settlements are complete.
If accounts are going to go unpaid because you cannot afford them, and for the many months they will be reporting on your credit report as late, closed by credit grantor, or closed by card holder, is not going to mean much of anything. The monthly late pays are going to do the damage at that point. I also am not a fan of proactively closing accounts that are part of a debt settlement strategy. It just looks a little to planned. The exception would be quickly getting any authorized users removed from the credit cards because the late pays will hurt them if those accounts are appearing on their credit reports.