3 credit cards past due and with debt settlement agency...what is my best option?

[kennedy2713]

I currently have 3 credit cards that I've given over to a debt settlement agency. After going through divorce, I am now finally trying to get this all taken care of and begin rebuilding my credit. I have about a 6k balance with discover, 14k with Citi, and 14k with Chase. The discover one is over a year old in collections and now with a collection agency. The citi and Chase ones are only about 3 to 4 months in collections. My debt settlement company has most recently been offered 50% on discover and 70% on the other two. After reading some info here, it sounds like debt settlement could be on my record for 7.5 years. I don't want that. I own rental homes and have a primary residence and an equity loan and never once been a day late on any one of those payments. So its only my credit cards that are hurting me but they are hurting me bad. Should I go ahead and settle or should I contact them and try to come current? My initial thought at this point is to settle the Discover account and then bring the other two current and begin paying them down. What hurts me more....the discover account being a year over due or the larger accounts past due for only 3 months? Which should I focus on?

[GregB]

A debt settlement company is an attempt to save some money on the debt in exchange for committing financial suicide. If you weren't willing to have your credit completely destoyed and willing to risk judgements, liens on any property, etc. then it is probably the wrong choice.

This is going to be a challenge. I would think the first step would be figuring out if you are locked in to the agreement with the debt settlement company.

I would suggest you collect as much information as you can over the next few days and then try to come up with the best solution.

[kennedy2713]

Thanks for the reply. So even if I only settle the one debt, it would be financial suicide? I really only care about being able to get home loans. Even though I have great history on my home loans, I would have a horrible credit score if I settled that one debt? Right now my credit is low 500's anyway.

[GregB]

The big problem is that they are paying late. A bigger problem is that you now have a collection, right?

A 30 day late, even 60 day late hurts your credit but the effect deminishes quite a bit as they age. A 90 day or 120 day late seem to hurt badly until they drop off your reports in 7-7.5 years. Having even one puts you in derogatory scoring buckets making it impossible to get a great score and very, very hard to get above 700.

If they get a judgement and/or a lien then that is a major hit that hurts the entire 7-7.5 years.

[atarvuzdar]

---

@kennedy2713 wrote:

I currently have 3 credit cards that I've given over to a debt settlement agency. After going through divorce, I am now finally trying to get this all taken care of and begin rebuilding my credit. I have about a 6k balance with discover, 14k with Citi, and 14k with Chase. The discover one is over a year old in collections and now with a collection agency. The citi and Chase ones are only about 3 to 4 months in collections. My debt settlement company has most recently been offered 50% on discover and 70% on the other two. After reading some info here, it sounds like debt settlement could be on my record for 7.5 years. I don't want that. I own rental homes and have a primary residence and an equity loan and never once been a day late on any one of those payments. So its only my credit cards that are hurting me but they are hurting me bad. Should I go ahead and settle or should I contact them and try to come current? My initial thought at this point is to settle the Discover account and then bring the other two current and begin paying them down. What hurts me more....the discover account being a year over due or the larger accounts past due for only 3 months? Which should I focus on?

---

I would try to get the Citi and Chase cards current if you can afford it. If you pay a settlement amount the chances are 99% likely that both Citi and Chase will update your credit report to show a Charge-off for the difference between what is owed and what you paid--whatever damage your score has taken so far, it would probably be worse after. If you can't quite get current immediately, then paying down the debt so you're not quite as far behind could also help and then slowly catch up in later months. Also, are your Citi and Chase cards still open? Paying them to current could save you those credit lines. If you go with a settlement amount then those cards will probably be closed, if they aren't already. This all depends on whether you can make the payments, of course.

If the collection agency is already reporting on your credit reports then the damage is already done with Discover. I would try to offer them a settlement amount with the stipulation that they delete the account from your credit reports (also known as "Pay for Delete" or "PFD"). If they don't agree, then you can then decide whether you want to pay the settlement amount and try to send Goodwill letters (basically, a letter asking politely for them to delete the bad information on your credit report due to whatever situation caused the lates in the first place). In fact, if and when you get Citi and/or Chase up to current, you can try for the GW letter with them to remove the lates, as well. No guarantees on the PFD or the Goodwill, but always worth a shot.

Regardless of what sort of credit/loan you're most concerned about, you might have a relatively long road ahead of you, but if you can take care of these accounts and stay current then time will begin to heal whatever wounds your credit report currently has and your scores will begin to rise, even if the PFD/GW remedy doesn't work for you.

Good luck!

[kennedy2713]

So a 120 day late stays on your credit for 7.5 years? Does it hurt as bad as a settlement? I know I could get off the settlement with no fees on these accounts cuz they are working on a business I have as well so they won't charge me for removing personal cards.

[GregB]

Any late stays on your report for 7-7.5 years. A 30-60 day late, with no new lates, starts to hurt less after a year or so. It seems to have little effect after a couple years.

A 90-120 days late still hurts badly at 6+ years as do judgements, public records, liens, etc. ANY of those keep your score being calculated in the derogatory scorecards, which severely limits you maximum score.

[RobertEG]

The reported adverse items each have their own, individual dates of CR exclusion.

A 120 late has a CR exclsuion date of 7 years from its individual date of occurence.  The same with any other monthly delinquency.

The collections have one date per creditor, that date being 7 years plus 180 days from the DOFD on that OC account.  That date is fixed based on activities on the OC account, and is not reset based on any date of settlement of the debt.

"Settlement" of the debt is satisfaction of the debt, regardless of the amount the creditor/debt collector agrees to as payment for its satisfaction.

The current status is simply "paid."  When settlement is made for less than the full amount, an additional special comment can be reported to your credit file, indicating that fact.  Some have stated that FICO scores such a special comment.  Regardless, it is a negative comment when viewed by anyone doing a manual review of your CR.

Any such comment would expire when the date of all adverse items reported on the debt have expired.