I have a financial dilemma. My husband has some old credit card debt that we're trying to pay off. We're getting a decent sized tax return and we're trying to figure out the best course of action. Both credit cards have been turned over to debt collectors. We have a few different options and I'm just trying to figure out what's the best thing to do.
We can call each place and see if they'll take a settlement for what we can pay with our tax returns.
We can pay off our car, put the rest toward the outstanding balances (which won't pay them off), and then take what we were paying monthly for the car and put it toward the outstanding bills.
We can divide out tax return in half, put one half toward one card and one half toward the other. We would then pay the rest with next year's tax return.
There is no way we can totally pay off either of them with our tax return.
The other option is to declare bankruptcy, but my husband doesn't want to do that if he can avoid it.
We are desperately trying to repair our credit. Eventually, we're going to have to buy another car and we'd like to be able to qualify for a loan. Right now I don't know if we could. I pay all of our monthly bills on time, but we are definitely a pay check to pay check family. If we can get these big monkies off our backs, then we'll be mostly out of debt.
**Please don't criticize us for letting the credit cards go to collections, or for wracking up such large debt in the first place. We know it was a mistake, but due to circumstances we did what we had do to survive. I'm looking for specific advice regarding our tax return early, not how to better manage my money or budget.****
Shoot! I forgot to mention that we're really not interested in going through one of the debt consolidation places. We've spoken with several and they always want some astronomical monthly payment.
Thanks!
Thanks everyone! We came to the conclusion that we'll decide which CC is still collecting interest. If they both are, then we'll go with the one with the highest interest. My husband is going to call them and offer them a certain percentage of the settlement. Hopefully they'll take the settlement. If there's enough left, we're going to contact the other company and do the same thing. If there's not enough left, then we'll pay off the car and use that money as payment on the other credit card until we get our tax return next year.
I think calling each company and offering what you can is probably the best bet. What if you paid off what you could on each CC and THEN consolidated?
I took bankruptcy because of huge medical bills and car repairs. It wasn't as bad as people say it is, though forget buying a house or car at a decent rate. After I spent 10 years paying off my student loans on time every month, I have a FIZCO score of over 800. I can get any loan I want.
I personally would save all the tax refund if you can get away with it. I mean save it to pay car repoairs, medical bills, and emergencies(not big screen tvs or a new computer).
If it were me, I would be trying to get the things in collections paid off first. When my husband and I got together, I had one card in collections and he paid it off with his credit card, then paid that off as soon as possible.
This is some advice we got a while back. If your car payment is manageable, and the interest you are paying on it isn't ridiculous, don’t be in a hurry to pay it off. You actually improve your credit by making your monthly payment on time.
I have student loans, and I was antsy to pay them off. But a financial expert looked at my interest rate and said that if someone is willing to lend you money at that good a rate, take it. Put your current money elsewhere.
In other words, I would put as much of your tax refund towards these debts which are clearly really weighing on you. Then, perhaps, you can work out an arrangement where the remainder can be paid in manageable monthly amounts.
Good luck!
Use your TR to pay down/off one of the cc, make sure to call them and tell them how much you can pay, so if you owe $5,000 but your TR is $3,000 say I can pay $3,000 and that's it, take it or leave it. Then the next year payoff the 2nd cc. Don't payoff the car because you are trying to repair your credit so you'll want that monthly payment to show up on your credit report.
I agree with your husband about filing BK, don't do it. And about going thru a debt consol co.
I personally would encourage you to see about taking a Dave Ramsey class. He has very specific lessons on how to pay off collection items & debt. He also has forms to use to send to cc companies and collection co.'s. The class is about $100 & you will learn sooo much your head will spin from excitement. And you can take the class as many times as you want and never have to pay to take the class again, and you will want to take it again. You don't have to have debt to learn something in the class either.
Pay whichever one is racking up the MOST interest!
I would pay down the cards and keep your car payment. I would avoid bankruptcy at all costs!!! I commend you for doing the right thing! So many people get into financial trouble and want an easy way out!
I would NOT pay off the car. Making those car payments in a timely manner is going to help your credit. What I would do is make an extra car payment. Not an additional principal payment, but paying 30 days in advance. That way you'll never be late, and you'll save a little in interest.
Paying off half and then waiting a full year to maybe make another payment is a really bad idea.
What I would do is contact the collection companies and set up a payment plan. Put the money into a savings account and make those monthly payments as per your agreement. This will help you to restore your credit. Don't allow them to tell you what your payment will be, you tell them what you will do. Do it in writing and be sure to keep copies of the letters.
If your set on using all the money, then I'd send all of it to one of the companies. You can you the approach the one with the smaller balance, or you can use the approach of the one with the higher interest/fees.
I know your not looking for budget info, but it sounds like your looking at a sizable amount from the IRS and planning on a large refund next year. Instead of lending this money to the government for free, why don't you take that extra money and pay down some of the debt?
Dave Ramsay! Pay off the smallest card first, then the next, etc. Then pay OFF your car as fast as possible. Buy O. of his books--you won't regret it. It will change your financial position and the way you look at money forever--for the good. Good luck!
go to Dave Ramsey's website and read ALL OF IT!!!! If you can settle with your credit cards- do that- but GET IT IN WRITING and DO NOT ALLOW ELECTRONIC ACCESS TO YOUR ACCOUNT! -They will clean you out! Dave Ramsey will help you get on a plan to clean up your mess- and it will be a lot better then going with a debt consolidation company- which are mainly rip-offs anyway(they charge you to let your debts go into collection so they can settle with the collection companies- you can do the same on your own without paying anyone a fee.)
If your tax refund is enough to clear up these two debts- think of the stress that will be swept away with that!
good luck!
~C.
Leave the car loan be. It is at least a collateralized loan. Credit cards are UNSECURED open lines of credit which is why they have higher rates, etc.
Take a look at your refund. Take a look at the two cards. Which one has the higher interest rate? Which one has annual fees? Which one has inactivity fees? Which one has steeper late payment penalties? Pay off in it's entirety the one that has the "worse" terms. If there is any refund left over, begin paying off the 2nd one.
I would strongly discourage paying down just "some" on both cards. Move one of the rocks that you are pinned under and your load will feel a lot lighter and your credit report will take notice that you are making a serious attempt to honor your commitments.
BTW -- I did not suggest reserving any of your refund for a rainy day fund only because I do not know you. Leaving emergency reserve savings untouched except for real emergencies is a temptation many of us would be hard pressed to resist. I would rather see any extra $$$ pay down existing debt than be frittered away $10-$20-$50 at a time.
I hear you - we had to do the same thing when my husband and I BOTH got laid off from our jobs 3 weeks before my daughter was born (we worked in the mortgage industry in 2007 - during the big collapse). I would definitely put it ALL toward the credit cards. Those are most likely the ones racking up the most in interest. Your car loan is going to stay the same rate - and even if it is a high rate, it probably isn't nearly as high as the cards.
Whatever you decide to do DO NOT use the debt consolidation services. They fail to mention that they put a Chapter 13 bankruptcy on your credit. When I was a mortgage processor, I saw more than my fair share of clients get their rates jacked up from what they originally were quoted when the bank discovered these on their credit report with their mortgage application. They are a total rip off!!! Good luck - and good for you for trying to right your situation. We are still working on it and it's been 4 years!!
I would pay off the car. Since you probably aren't paying interest to the debt collectors, I would just give them what you would normally pay for the car. You could just give the debt collectors half of what the car payment would be and then put the other half in savings for a down payment on the next car. OR you could just pay the debt collectors the amt you should and put what would be the car payment into savings for the next car. It doesn't sound like you need to file for bankruptcy.
I live paycheck to paycheck also. I just recently was sent to the debt collectors for a hospital bill. I actually made the paymet early but when the bill arrived I didn't give them anything. Luckily the payment is low so its ok.
I would call the credit card collections first and see if you can get a good settlement in writing. Then you could go from there in deciding what to do with the tax return money. I would probably leave the car payment alone for right now since it is current and paying it on time monthly will help your credit rating. I don't know what you owe, but sometimes bankruptcy is better than trying to pay impossible bills and continually dealing with collections. If you make an agreement with a collection agency, be careful about setting up payments or giving them any bank info. They could go in and take whatever amount they could instead of the amount you agreed on. Tell them you will send in payments and pay them with a money order or cashier's check. I would also try to save some of that tax refund out to have as somewhat of a buffer should something come up. If you do go to a consolidation place, there are non profit ones that are legit and can help, but you have to research them well and find out what happens every step of the way, including what your credit will look like after using their services. I went down your road after my divorce and I did file for bankruptcy because that was better than the debt and years of collections I would have been looking at. It seems bad, but it takes the pressure off right away, and it did not take long before I could get some credit again. I only have a few low limit cards now and find that is all I need. There are car places who will lend to those who have bankruptcies, but you will pay higher interest than normal, but you will get the credit. Whatever way you go, it will take a while to repair your credit, so you just have to decide if paying the credit cards off is even do-able for you without it taking years and years of being in delinquency. Good luck to you, and I can tell you since I have been there it will get better some day!
I'm assuming the credit card debt is still accruing interest, so I would go for that first. I would call up each place and offer to settle for half of the debt and then let them counter with their offer. I seriously doubt they would go lower than half and they will more than likely want to settle for more than half. If they agree to settle, GET THE OFFER IN WRITING! Make sure to indicate on your check it is payment in full based on offer dated whatever date their letter is. There are a lot of shady collection agencies that will offer a settlement and still come after you for the remaining balance after you pay your settlement. You might only be able to settle one of them, but that would at least get that one off of your back. I wouldn't go half and half on each card unless settlement for either isn't an option and you have to start a payment plan for both of them. I'd pay highest interest rate first, so if your car loan is lower interest than the credit cards, it can wait. You'll want to get the delinquent stuff paid off first. Good luck!
From persponal experience if you use your TR to pay down the cards, it won't help much. You'll still have the debt and the late charges and the interest, etc, etc. And since the cards are in collection your credit is already marred.
I don't advise bancruptcy lightly, but given the state of the economy and the fact that 9.3 billion people, (incl us), filed for it last year you know you are not alone. After I lost my job when I was 6 mo preg, and my husband was not working because he does construction it was our only option.
It's scary and humbling, but if you are doing it for the right reasons and don't get back into debt then don't beat yourself up about it. Just make sure you use a reputable firm.
As far as getting a car loan-I wouldn't worry to much.Focus on what you have to do now-I gaurantee that if you need a car, you'll find someone who will work with you. Plus you could save some of the TR $ and put a down payment down or save it and just buy something outright when you need it that doesn't require you to maintain a payment.
I completely agree with Ellis. Having credit cards does not hurt your credit, it's only negative when they are all close to their limits, so paying a couple down would actually benefit you quite a bit. One thing that I HAVE to add is that if you do get to pay one completely off- DO NOT CLOSE THIS CARD. Cut it up, don't use it, whatever you want, but it will help your credit a lot if you leave it open with a zero balance. Everyone makes mistakes in their life- good for you for taking the huge step to get this fixed financial troubles are some of the toughest- good luck with everything =)
We had a credit card that we could not pay and the credit card company set it up at 2% interest and is accepting low monthly payments.
If I were getting a large tax return, I would keep at least 1/2 of it for bills in case your situation gets worse. You just never know what is around the corner.
That said, you can negotiate with most places without involving a third party. My sister did the debt consolidation and still has people coming after her many years later that say they were never paid. I would tell the collection agencies that you will either negotiate or you will be filing bankruptcy, and then they will get less. Sometimes that is the best way to go, but we chose not to do it. I refinanced our house in order to get back on our feet, but you didn't say if you had one, so I would definately keep some of the money back as an emergency fund.
Good luck!
I agree with your husband.
First thing is to call the credit card companies and tell them that you would like to do a SETTLEMENT, which they many times will settle for less than what is owed. They've already gotten their $$ in interest and fees! Especially try to negotiate the card with the higher of the interest rates. You didn't mention that your card was behind, so work on what is in default. They WILL ask you for all kinds of info...bank statements, what you pay out every month for bills, etc. It's WORTH your time.
I just recently negotiated on a rental property that I've been overpaying the taxes on for the past six years. Fraud had been committed and as a result of a series of phone calls I made, I began to see what had happened and decided to put a STOP to it! You don't have, because you don't ask......so ASK. Something is better than nothing.
They may ask you to set up payment arrangements, but do what it takes. Your credit will improve quicker than if you just ignore and/or file bankruptcy. You really don't want that on your records.
Once you figure out what your strategy is, then STICK to it! Once the smallest one is paid off, use what you were paying on it toward the next smallest one, etc. until they are ALL done. I did this 25 years ago when I had a five figure medical debt and they would actually work with you. It took me EIGHT years - I was making $150/week substitute teaching - but I did it and I will NEVER regreat. I can remember as clear as day, putting the last check in the mail and WHAT a freeing experience! It was called discipline even with such a small paycheck, I did you. You'll be glad you did and if you have children and they are old enough to understand part of what's going on, TEACH THEM and allow them to see what you're doing and hopefully HOW you got there so that they won't ever put themselves in the same situation. It can be a learning tool for ALL of you.
This is what I think; as credit cards are already in collection theres is nothing else but to pay if you can get a settlement on those will be better than paying you car (if you pay your car early doesn't help your credit). I'm in a situation like that but I was able to arrange a better interestes rate and lower monthly payments when the cards are in collection I believe is not possible. You can fix your credit if in 24 months you pay your bill with no delays .....
Definitely call the cc companies and negotiate. 50% is good, but they might not come down that low.
Then make payment arrangements. Maybe pay the car off, and once that is done, you will have that money freed up to make your monthly payments on the credit card balances.
As the other people said...tell them to send you a written note, stating that you will pay whatever percentage you negotiated.
There is no "correct" answer. Both Suzy Orman (pay something off) and another guy ( blanking on name--pay the highest interest off) wind up coming out about the same in the end. Settlement might be wise if you can get a good deal but so is paying off a car and having that income freed up! Keep your car as long as you can! Dave Ramsey; just unblanked
call consumercreditcounseling i did that when i was young and stupid and got in over my head. they get the interest to stop on the credit cards and decide for you the bestway to pay
There are free debt consolidation services available, too. Google "debt counseling, free" to see what your choices are. Since you have tax returns coming in, this would be a great time to contact them for advice. Good luck.
I think you should try the first, and then if their response is no, then do the second and stick to it. Good luck.
The best thing you can do for yourself is to follow Dave Ramsey's Debt snowball! He has a book out, if don't want to read it all google it! Basically, you start with your biggest debt first. So make a list of all your debt, how much you owe with each and put all your money towards the one with the most debt, then move on to the next and so on. We did and now our only debt is our mortgage. No credit cards, cars, loans, nothing! Its wonderful!
Good luck!
A.
