How Can I Delay Debt Negotiation and Use My Tax Refund to Settle Debt?
Thanks so much for providing such a fantastic resource for the DIYer. I have read thru the Debt Settlement process & have a few additional questions. I also want to make sure I do this right & need a little additional help figuring out timing & prioritizing creditors.
This is what we have going on:
1. Care Credit (GE Bank)
Total Debt: $382.00
Last payment 8/8/13
Already assigned to Allied Interstate Collections
Total Debt: $1152.14
Last payment 7/15/13
They actually sent me a settlement offer (due 12/15) for 50%.
3. Capital One #1
Total Debt: $904
Last payment: not sure? Was originally an HSBC card but then Capital 1 bought it from them in either June/July.
4. Capital One #2
Total Debt: $2189.35
Last payment: 7/23/13
5. Home Depot (the biggie)
Total Debt: $6070.70
Last payment: 8/5/13
I was laid off 1.5 years ago & was eligible for unemployment until 8/13 when my benefits ran out due to EUC being shut down. While I was getting unemployment, I was able to make the payments & attempted to pay down my debts. Since my last unemployment check it has been a major struggle to pay these debts & paying for our home, utilities, & food. My husband also has a small side business that he has been able to contribute money towards our debt but it isn't regular. We also had a baby in June & accrued medical debt so we have been over our heads in debt that we can't afford to pay each month.
I recently found out that I am eligible to collect about 3 weeks of unemployment this month because our state re - instated EUC tier 3 for this month only. I am estimating on receiving about $900 from that which I would like to use to help settle some of these debts. I am also estimating that we will be getting a tax return this next year so I wanted to use that money to hopefully settle the remaining accounts.
How do I pick which one to settle first? Do I need to get a settlement in writing from the credit card company too?
What order should I prioritize these debts? Is it too early to start calling & asking for settlements or do I need to wait a month or so? I was hoping to wait until January so I have a better idea of what my tax return would be. Is that going to be too late? Any advice would be super helpful. Thanks so much for your time!
Depending on when you get your tax refund, some of the debts you listed can be best timed for negotiation right around the time you get that money. Even if you do not file early, if your tax refund is enough to fund all settlements, and especially the Home Depot card, you will likely be able to minimize risks, and maximize your savings with your settlements.
How to prioritize credit cards to settle.
The 900 dollars you have tagged for use to settle the first debts should go to eliminating the most debt, the most at risk to sue, or a combination of both if possible. This first bit of funds is not enough to settle the Home Depot account, so that is off the table. Care Credit will settle for 40% of balance and under when negotiating with outside collection agencies, or Gen Pac, or even someone who buys the account. You can see the 2013 settlement percentage trends with the largest credit card issuers, like Citibank and Capital One, here: https://consumerrecoverynetwork.com/review-top-7-credit-card-lenders-best-offering-debt-relief/
Those trends have not changed as we head into 2014, and while I expect some changes this summer, you should be through with all of this in the next couple months once you get your tax refund.
I would target Care credit and Citibank for your first settlements. Citibank already offered what is close to as low as they go on a debt this size based on current trends, and you can get Allied to settle for 50% or even a bit lower. Remember, smaller balance accounts are tougher to get the best reductions when settling.
Settle the other debts with your tax refund.
Capital One is the most likely to sue out of your list of credit cards. But they are also the hardest to settle with directly. If you wait until you get your tax refund, hopefully that comes in the next 2 months, you will still likely be able to negotiate with the first outside agency Capital One sends your accounts to for collection. Your targets will be 50% to 60% of the balances owed at the time you are negotiating.
Settling the Home Depot account will similarly be done with the first collection agency to get the account, unless it is bundled and sold right outside of charge off. But even then, you can often settle for the same target of between 40 and 50% (sometimes a bit less, but best to be realistic).
Yes, you definitely want to get everything in writing when settling. It is no different with original creditors than with debt collectors and debt buyers. The documentation is pretty standard in either case. You can review this report for more about what to look for in settlement letters, and also read through the first several comments to learn more about how getting the deal documented with originators can be a little bit different.
A few questions for you:
- Are any other unsecured creditors being paid on time? If so, who and are the balances less than a few hundred dollars?
- Are any of these accounts joint with your husband? Which ones? Are any just in his name?
- Do you have a bank account with Citi or Capital One?
I can offer some additional feedback and raise more awareness if I know the answer to these questions. You can post them in the comment section below, along with any additional questions or concerns my feedback brought up so far.
Anyone trying to plan around using their tax refund to settle unpaid bills is welcome to post in the comments for feedback.