topic Re: Credit Card Debt Settlement On Your Own--Unemployed in General Credit Topics

Credit Card Debt Settlement On Your Own--Unemployed

Anonymous — Fri, 19 Jun 2009 18:48:41 GMT

I have one CC with a $13K balance and a CC with a $5K balance. Rate on the $13K card is 4.99% and min payment is $185/mo. Rate on $5K card is 8% and min payment is $100/mo. I lost my job this year and am collecting from unemployment.

Now, things are getting very tight each month and can not afford making these payments. My question is if I succeed in getting a debt settlement (pay less than balance owed) with my creditor, how will the "settled" rating affect my credit score and how long does it stay on my report?

I have never been late and my FICO score is avg 730. Many thanks for any responses!

Re: Credit Card Debt Settlement On Your Own--Unemployed

medicgrrl — Sun, 21 Jun 2009 01:20:31 GMT

The settled rating will negatively affect your credit. I ran into the same situation 5 years ago when I lost my job. I wish I had known then what I know now! I normally would not advocate borrowing from peter to pay paul but when you are living on unemployment, sometimes you just need to survive until things get better. Is there anyway you can pay the $285 in payments and then use the card for $285 from your gas/groceries budget? This way you are actually not having to spend on the payment and would hopefully save $285 in your budget for the necessities in life. I know it is not the best thing to do but unemployment is a short term problem, credit issues stay with us much longer! I wish I had done this 5 years ago instead of having my 2 cc's haunting me for another 2 years!

Re: Credit Card Debt Settlement On Your Own--Unemployed

MattH — Sun, 21 Jun 2009 04:14:24 GMT

@medicgrrl wrote:
The settled rating will negatively affect your credit. I ran into the same situation 5 years ago when I lost my job. I wish I had known then what I know now! I normally would not advocate borrowing from peter to pay paul but when you are living on unemployment, sometimes you just need to survive until things get better. Is there anyway you can pay the $285 in payments and then use the card for $285 from your gas/groceries budget? This way you are actually not having to spend on the payment and would hopefully save $285 in your budget for the necessities in life. I know it is not the best thing to do but unemployment is a short term problem, credit issues stay with us much longer! I wish I had done this 5 years ago instead of having my 2 cc's haunting me for another 2 years!

Medicgrrl is right,settling for less than the full amount owed will have a significant negative impact. Anything other than "paid or paying as agreed" will harm Fico scores. However, unemployment without reserves may well leave the original poster with limited options, and if the choice is between food on the table or a Fico score then food has to win (but it need not be fancy food). Original poster needs to take a thorough and creative look at all aspects of finances and make hard choices with clear eyes in a difficult time. Depending how deep the financial hole is, s/he might need to stay with relatives for a while or something similarly drastic to make ends meet, as running up debt to pay immediate living expenses cannot be kept going for very long. Unless original poster has specific reasons to believe his or her job hunt will be unusually brief -- and many career advisors are saying in this job market the average time to land a new job is much more than a month for every $10K of annual pay -- cutting expenses must not be postponed.

Once original poster does get a new job, after paying down debts incurred during the spell of unemployment an extremely high priority for him/her should be saving up some reserves so as to weather any future misfortune with less difficulty. Financial planners historically have recommended having sufficient emergency cash reserves to cover three to six months of living expenses; these days with the worst job market in decades I think it better to have at least six months of reserves and best to have more than six months of reserves.

Re: Credit Card Debt Settlement On Your Own--Unemployed

medicgrrl — Mon, 22 Jun 2009 13:08:32 GMT

Sorry if my post was a bit confusing. I am not saying running up the credit cards to live. I meant to basically keep the cards where they are at. I guess it really depends on the APR on the cards but if you pay $185 then charge $185 for food then you are basically net $0 plus finance charges. It will keep the cards from going into default and not take a penny away from the budget for everyday living expenses. I actually do the same thing by PIF every month. I use my card for gas then PIF so really my bottom line of my budget is exactly the same.

Also, depending on your field of work, you may need your good credit rating for employment. I would definitely cut back every expense possible. My kids and I had rabbit ears on our TV for 4 years after my job loss so I could find work and go back to school. You really can save a lot of money if you cut things out. Home phones, cable, high speed internet really aren't that important in situations like this. Don't be too proud to move in with family. I know it's very difficult but it would only be short term. Generic brand food also tastes just about the same. There are lots of ways to save money in times like this. Read thru these threads and you will find some excellent suggestions!

Re: Credit Card Debt Settlement On Your Own--Unemployed

Anonymous — Tue, 23 Jun 2009 18:07:37 GMT

I will reevaluate my financial situation and see what the creditors can provide to me in writing first.

Thank you very much for your valuable input and for sharing your personal experiences!