Paying CC debt in full vs. settlements

[Anonymous]

What are the negative effects of paying off my CC debts in a settlment vs paying them in full.  I have large sum of debt all in credit cards and I would like to knock it all out as soon as possible.  All of my accounts have gone into third party collections and I get phone calls all the time.  I just started taking of this a few months ago and my first card that I cleared was done so in a settlement where I paid only 50% of what was the original debt.  How does paying in settlements effect my credit score and the length of time the derogatory accounts are lifted from my credit score? 

[llecs]

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@Anonymous wrote:

What are the negative effects of paying off my CC debts in a settlment vs paying them in full.  I have large sum of debt all in credit cards and I would like to knock it all out as soon as possible.  All of my accounts have gone into third party collections and I get phone calls all the time.  I just started taking of this a few months ago and my first card that I cleared was done so in a settlement where I paid only 50% of what was the original debt.  How does paying in settlements effect my credit score and the length of time the derogatory accounts are lifted from my credit score? 

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Welcome to the forums!

If the accounts already have major lates reporting monthly or even CO'd by this point, then there is no score difference if you settled or PIF. A settlement comment in the comments section is very damaging, but so is a charge-off comment and both weigh equally. So, I predict no difference.

If at this point in the account, the only reason, socre-wise, you'd want to PIF as opposed to settling is that PIF improves your odds of them accepting a GW request later on. If I was a creditor and someone owed me $100, I would be more apt to approve a GW if they PIF as opposed to paying just $30 on the same debt. Now some creditors don't care either way. Also, some creditors won't reopen the account or grant new credit if you settled. YMMV based on the OC.

Once a TL goes late, a late will report, then if a payment is less than the org. contracted amount, then a new late of 60 can appear, then 90, 120, and so on. At some point, it becomes CO'd (which really doesn't mean anything) and they can continue to add lates monthly and interest up to the point it is settled or PIF or they sell it (to a CA).

IMO, ignore FICO at this point. It doesn't matter. You'd want to take steps to prevent future damage. If not taken care of, a CA could report and/or the OC or CA could sue and that would complicate things further. If you have a payment plan, stick with it. I'd rapidly take steps to increase income and decrease expenses to save money on the side. At some point, you can easily go back to the OC and offer a PFD letter by paying the balance or the balance via a settlement on that balance in exchange for a deletion. You'd do this in a one-payment plan. If not, then eventually, the balance will hit $0 and then you can start GWing them asking them to remove any lates or comments.

[Anonymous]

Thanks a lot for the in depth response.  I have a quick question though.  I'm not familiar with a couple of the abbreviations that you used.  What do the following mean?

GW

YMMV

TL

PFD

Please enlighten me.

Also on another topic.  I have a seperate post that kind of ties into this situation.  The link to the original post and quoted are below.  What's your opinion on that question?

http://ficoforums.myfico.com/t5/Bankruptcy/Which-route/m-p/817856

I have roughly 70k in credit card debt.  I have had it for a couple years now and just started making ground by paying it off as of a few months ago.  I've been researching more on debt and the credit scoring system.  Here is my question. 

Paying off my debts and bankruptcy both take about 7 years to clear my record.  If they both take about the same time to clear from my record, why would I not just declare bankruptcy and not have to pay anything back at all? 

Paying off my debts will actually probably take longer than declaring bankruptcy to clear my record because I won't be able to pay all my debts off in a short amount of time.  it will have to be a long gradual thing.  

Why would one in my situation not declare bankruptcy?

Thanks again for your advice.

[MarineVietVet]

GW= Good Will

YMMV= Your Mileage May Vary

TL= Trade Line

PFD= Pay for delete

Here is a list of Abbreviations.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

Awsome, thanks for the link. 

You have any input for the second part of my last response?

[MarineVietVet]

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@Anonymous wrote:

Awsome, thanks for the link. 

You have any input for the second part of my last response?

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I'm reluctant to give much advice about BK because so much has changed since mine. IMO (In My Opinion) there is no right or wrong decision concerning this. You are the only one who knows all the details of your situation.

For some people it's a matter of pride and being able to say they paid everything off on their own without BK. I like to think if I'd known about this site all those years ago I could have avoided BK altogether but that's an unknown.

In my blissful ignorance all my negatives died of old age long before I came here. I knew nothing of GW's, DV's, PFD's, etc. I'm sure over those years I paid more interest on loans.

Before making that kind of life changing decision I'd stick around here and learn all I could about credit repair and rebuilding. You might just decide that tackling all that CC debt is a challenge you look forward to. 

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

Good advice from MVV.

I'd also recommend doing a free consult with a BK attorney.  They'll help you know if BK is an option - you have to meet certain criteria.  Be aware, though, that BK attorneys are "in the market" - so they'll almost always encourage you to file.  So, be sure to check out other legitimate options as well.  And, of course, always look at debt snowballing as one option to consider.

After you have some solid info on your options, you'll be better prepared to make the decision and move forward in a way that's best for you.

[RobertEG]

BK is a court-ordered discharge of debt owed under each account included under the BK order.  It is not a discharge of any credit reporting.  Credit reporting is not within the jurisdicdtion of the BK court.

BK requires the creditors included under the BK discharge to then update their current balance of debt  owed to $0.

BK does NOT require your discharged creditors to delete any prior, and accurate, credit reporting they have done of any delinquencies they have reported on the debt prior to the BK.  They remain.

FICO does not score payment of debt, or even discharge of debt.  It scores prior derogs incurred along the path. So BK does not remove prior credit reporting.

What it clearly does, from the prospective of your CR and credit scoring, is to add a new, major derog.

Entering into BK is not a mea culpa.

[mauve]

Your state probably has some sort of service to help you figure out your financial life.  I know mine does - in combination with their housing programs that are affiliated with HUD, they have all kinds of credit / budget counseling that is available at low or no cost.  They're likely to be able to give you honest advice without trying to push you in one direction or another.

If you're unable to keep up with your minimums, if your balances are increasing every month, etc, bankruptcy may be the best option.  If not, it may not be - the way your question was phrased, it seemed like a "why should I pay if I can just declare bankruptcy?" more than "I just don't know what else to do".  The advantage to paying your debts is that you gain the control and the self-discipline to not end up there again.  You also will have a clean record sooner, in all likelihood - your lates and chargeoffs will drop off 7 years from their DoFDs, and you'll have positive tradelines afterwards (for 3 years on an already closed account, for instance), which will add to your AAoA and credit history length.  If it were me, I'd get as much info as I could before resorting to it.