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My husband and I have several credit cards totaling 26,000. We want to pay them off, but we want to negotiate with the lenders regarding the balances. If we do that how will this affect our credit and for how long? Is it worse to negotiate down the balance or to pay them off little by little, considering that the CC are raising the interest and not really giving you an option for a lower rate unless you close the account!
If you negotiate a lower balance and pay it off, several things will happen.
1. The card will be closed.
2. They will probably want the agreed upon amount within 10 days.
3. They will send you a 1099-C and you will have to pay 40-60% in taxes on the amount "forgiven".
My suggestion would be to call them up and ask for a lower interest rate. Go on a payment plan.
1. The card will be closed.
2. The interest rate will be greatly reduced.
3. The card will be paid off in 5 yrs or less.
4. The criteria for a payment plan is to be able to pay if off in 5 yrs. It reports card closed, paid as agreed.
It helps if you have an idea how much you can afford to pay each month.
When my friend and I called in about her account, we told the cc rep that it was a choice -- my friend could pay the cc (the amount they wanted) or she could feed her kids. She told them feeding her kids came first. She told them I can afford xxx amount. It took some negotiating, but they finally agreed to what she could pay. I think they asked her how much income, rent, car payments, living expenses, etc. She had a budget done before we called. She also had to explain WHY there was a change in her circumstances/income.
And for good measure, she pointed out to them that she knew things were tight and had *chosen* NOT to use her card in the recent months.
Good luck! Email me if you want to do a dry run practice or need more information.