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06-04-2010 07:19 PM - edited 06-04-2010 07:20 PM
Please help me-- Im desperate for some hope and direction. Like everyone else…I have 100’s of stories of how responsible I always was with my credit until… I fell in love. skip skip… She left and im stuck w/ 40K on 2 BofA unsecured cards at ~7.99. BofA will not negotiate (~unless I miss pmts.) CL’s all dropped last week.
Only a year ago, I paid for the wedding and was ready to put $ down on a 1st time home. Now still renting, heartbroken, broke but not broken. My new goal is to be out of debt and be back on track to buy a home in 4yrs. I still have a 730 fico, 8K extra cash, 11 years self employed, no other debts and might be able to pay off the 40K in 4yrs…
My question is-- in 4yrs, wouldn’t I rather meet w/ a lender with a bad credit score and a derogatory, but have ~40K to put down on 200K house? Or would I rather have a great score and no money down? I just need some help projecting out my options based on my situation.
Pay it off? Strategic settlement? or strategic default? Pros Cons? Fico point drop predictions? What resources might someone like me consider, CCCS, BK lawyer, or one of those 1-800 offers. I have been getting so much biased advice from program pushers my head is spinning. I just need some honest direction and a lil love.. please help me.
06-05-2010 07:50 AM
More than 40K will be required, there will be interest charges as well.
If you put it in the bank that will earn interest.
Banking the required payments should net you 50K at the end of 4 yrs.
You'll have to wait 7 years to get any kind of decent terms with an unpaid collection of that size. BofA will never forget that you stiffed them.
I don't know how a collection/settlement/reduced payment arrangement would affect your future borrowing.
06-05-2010 08:44 AM
Personally I say continue paying the cards. Cut ANYTHING you can out of your budget. Make food at home instead of eating out. Pack your lunch for work instead of dining. Cut the cable or satellite bill and just use the antennea. These are hard but not impossible as I have made these sacrifices myself. Look for anything extra to cut can you reduce your cell phone plan. Then ANY savings you can cut and ad to your budget pay DIRECTLY to the credit card., The more you pay each month the faster it will go down and you will pay that much less interest in the long run. Now consider this. You have a 730 FICO now. If you let this charge off and go to collections you will easily drop to below 650 but lets just say 650. A 730 FICO has an average mortgage interest rate of 4.727%. A 650 has an average of 5.548%. For example on a $150000 home loan the following would apply:
730 FICO 650 FICO
4.727% Interest 5.548% Interest
$780.39 Monthly $856.21 Montly $75.82 monthly difference (for 30 years!)
$130,941.00 $158,234.00 <---- Total Interest Paid over 30 year life of loan for a difference of $27,293.
So if you let this account go your mortgage would easily be $75 more a month and a home would cost you almost $30,000 more than it would today. Now you also need to consider if you buy a car you will also pay more similar to the mortgage difference, any credit card or loan interest rates will be higher, your car insurance will cost more as they also consider your FICO. So for a $40000 balance it would cost you $30000 as stands not counting other factors like credit cards, autos, insurance, etc. I dont see any benefit of letting this account go. Like I said look for any places you can find extra money to put toward the credit card. Get it paid down. Not to mention you will feel alot better knowing you paid this debt than knowing that you had a $40,000 obligation you didnt take care of. And did I mention the next 7-10 years of creditors calling and harassing you and possibly family or work numbers? Not to mention $40000 is a lot of money. I would think BofA would most likely sue and then if they do that and get a judgement against you then you will still have to pay back the $40000 and will still have a crappy credit score from it.
Just my opinion but I dont see any benefit to not paying this short term or long term. I hope this works out for you.
06-05-2010 08:46 AM
Also if you have $8000 in cash take 4000-5000 of it and put to the card immediately. This will effectively bring it down to like $35000 and will lower your monthly payment. HOWEVER dont actually lower your payment. Lets say the minimum payment is $100 then you pay the $5000 and it goes down to $80. Dont just pay $80 keep paying the $100 plus any extra you can find to come up with. Just throw as much money as possible at this to get rid of it. I only say to pay $4000-$5000 and keep the other $3000-$4000 in case of emergency down the road.
06-05-2010 11:53 AM
Thank you okstatefan5945. The future score/ mortgage math projection and advice was very helpful. By doing a strategic default do you think my 730 would only come down 80 points? (650) I think I could even afford a +100 point drop knowing that FHA only requires a 620 today. Im confident that by using the tools on MyFico, I could easily raise my fallen score. I would still have some cash to be responsibly/ creatively move around and make score go up even faster. Cash to present a lender some day. Not to mention the debt being gone will help my debt ratio and help score over time. Yes, the derogatory would be tough to explain to a lender however I was awarded a small court judgment against the ex over the 40K. She’ll never pay but it might show that 40K wasn’t all my fault.
? How do the CA lawsuits usually go?
? Anybody think I need an attorney to find out about this?
? I feel there are more pros than cons in a strategic default.. but wouldn’t some sort of settlement be better (with all things considered)?
? Of ALL the options and programs out there I have no idea what would fit a circumstance like this the best
? I wish I knew what kind of score drop to predict based on a default vs. a settlement?
Thx in advance for help and guidance!!
06-05-2010 12:04 PM
Keep in mind this the FHA minimum score is 620. HOWEVER that does not mean oh you have a 620 sure here have a house. They still have underwriting guidelines. I was projecting 80 points to be conservative. It could easily kill 100 or more points off your score. Once those go into collections it doesnt matter how great the people here on the boards are.. (and they are great) there is not one of them that will be able to make that $40000 default disappear. The most common way we get things deleted are pay for deletes and goodwills. In your situation if you were willing to pay for delete you would just pay to begin with. And a goodwill only works AFTER the amount has been paid. As for judgements I dont have any knowledge of them except that I know they suck and they can take your money forcefully. I would advise you consult a member who has personally been through a judgement of this magnitude for starters AND THEN consult an attorney in your area for his advice on what could happen. But I dont see BofA just letting $40000 go without a fight.
I personally think the best advice is to cut back on extras and pay the card bill. Thats just me though and I am only trying to show you what CAN happen if you dont. I hope it works out for you and hope you decide what is truly best for you. I just dont see default as the best option but I am not walking in your shoes so will not judge you either way it just depends on your situation.
I do wish you the best of luck in whichever route you decide to go down though.
06-05-2010 12:07 PM
And I forgot to add you asked the score difference in chargeoff and settlement. I think it will be the same. They usually require it to go chargeoff before they settle it I thought?
06-05-2010 03:46 PM
I don't believe there is any benefit to you "strategically defaulting" . You have to realize the consequences won't be too pretty.
Understand on a basic level what you are risking with defaulting: 1) a lawsuit - I can't believe BOFA wouldnt sue you over this amount 2) you risk AA from your other creditors closing your accounts - they'll get wind of the 40 k default and try to minimize their risk 4) mortgages are mostly likely going to adopt stricter underwriting requirements - cruise on over to the mortgage forum and read on since this is your utlimate goal. 5) You could spend several years, for as long as that account can report, in credit card purgatory - now you might have to dance with the sub prime cards for a while, with their crappy terms,crappy limits, no growth potential and outrageous annual fees.
I'd bet a dollar to a donut that other prime lenders will probably turn you away in a heartbeat for many years to come. It's a rather large amount, IMO,for any creditor to overlook.
Put on a lenders hat for a minute - if you were in charge of making loan decisions, would you really lend to someone that defaulted on 40K?
Best of luck to you in whatever you decide to do.
06-05-2010 04:55 PM
I like the way you think Macro The ex was added as an authorized user during our 6-month marriage. This was done with her over the phone. Her low credit would allow for her to be a co-signer. She was issued two CC’s in her name. I now have both of those in my possession.
Thank you Daisy & Okstate! You have made some valid point against a strategic default despite how great it would be to have more money to offer a lender in a few years if this 40K was gone today. Following my original “meeting with a lender in 4 years” scenario:
A) Sit down with with 40K cash to put down on house but have a low 600 and a derogatory?
B) Sit down with 0 cash with a high 700?
Instead maybe I should be considering a C:
C) Sit down with ~10-15K with a mid ~700 after setteling and hopefully have a derogatory that doesn’t sound too incriminating?
I am soooo grateful for your guidance!!