Several old debts - settle?

[Anonymous]

I have several old debts that have been in collections for years (old phone bills, doctor billes,, old credit cards, etc.) - I get constant notices in the mail, and constant phone calls. We are barely making ends meet, so I honesly have been ignoring everything for a very long time.  Our financial situation is changing soon, so I will have some extra money each month and would like to begin digging out of this very deep hole.

Some of the notices I receive in the mail offer settlement amounts. I do know that there is a difference between "settled" and "paid in full". What is my best strategy in negotiating a "paid in full" status?

Can paying off debt from years back *hurt* my FICO score? 

My ultimate goal is to be able to qualify for a mortgage within 2-3 years.  Starting at 498, I know I have a long way to go.  Any thoughts/suggestions would be greatly appreciated.

Thanks so much!

[LIGHTNIN]

Hi KM77, welcome to the family here at myFICO,

Congrats to YOU on getting your CS (credit scores) &  CR's (credti reports) in order.

I'll mention a few things and let others jump in too.

Study or make a copy of the Common Abbreviations , so you'll know how we talk around here.lol

 Start with pulling your FREE CR's from (ACR) annualcreditreport.com .

They tend to have more info on them, then ones from a 3rd party.
The CR's from ACR, come directly from each of the CRA's. You can pull 1 Free CR from TU,EQ and EX every 12 months.

Save your money and dont buy the scores, they are what we call FAKO's,for more info read  The Son Of Credit Scoring 101.

2 dates are very important to know........DoFD and your states SOL on each account.

EX CR and TU CR will have the drop off dates. The EQ  report will show the actual DoFD.

Confusing CRTP and SOL is very common, but they are two different things.
CRTP has to do with CR's. SOL has nothing to do with Credit reporting,it's the legal side of a debt.

CRTP (credit reporting time period) is the length of time an item reports on a CR.
Most negatives stay on a CR for 7yrs, CA's stay for 7.5 yrs, Starting from the DoFD.

SOL (Statue of Limitations) is the legal time limit a creditor has to sue and win. Most states it's 3 to 6 yrs, some states it's longer.
 Google, to find your states SOL. But be careful ,not everything on the web is correct, use a reputable source to gather your info.

Once a debt is passed your states SOL, you can use passed SOL as a defense.
Also check your state laws, in some states, the SOL can be re-set by a payment or written acknowledgment, etc.
A creditor can still try to collect on a debt forever or until paid.

I know it's alot to take in, but it will all make sense after you read and read and ask questions.Oh did I say read. lol

Enjoy, learn and make friends along the way. Look forward to talking with you again

[jake619]

LIGHTNIN said it all rather well... a lot to take in.

Regarding the opportunities to settle, I have taken two offers for two different reasons. There is a gotcha that the collector likely will NOT tell you though. I had a mortgage go sideways on me, long story short, we had to prove a hardship and well, hard to prove that when you're paying your bills. EVERYTHING went into default except the car loan. All of my open CC's were closed by credit grantor - I was hosed. This was at the height of the mortgage drama - wife lost job, new baby and I had my pay cut 15%. I owed 13K on a revolving HSBC account. They finally offered to settle for $4900. I thought holy $, finally I caught a break. Two months later Wells Fargo offered to settle an $8400 LOC for $2800. Again, how did I get so lucky? I jumped at both opportunities and well, come January I got kicked in the bag with a pair of 1099's totaling ~$13.5K. Totally screwed my taxes up. The debt forgiven was applied as taxable income. Who knew, right?

I'm in California, and the laws may be different for you, but my tax advisor told me that if the forgiven amount >$600 then you get 1099'd. Had I consulted with her before I would have known. I doubt it would have changed my decision seeing that the settlements were so generous, but I would have certainly applied the math a lot closer to see where I would have been BEFORE owing extra taxes. When you're counting on a good return it's pretty deflating to be told you owe.

Remember, their offer is just a starting point.  Negotiate the debt like mad.  What's there to lose?

[sphinx313]

Definitely be careful with the 1099C situation. As Jake just described, it could push you unexpectedly into another tax bracket and crush your plans. Good luck!

[Anonymous]

I am in the same boat as you.  My score is 597 and 560 and I would love to be in the upper 600's.  Years ago, I settled on an amount for a credit card and a friend of mine just also settled on 2 diff credit cards.  I think they'll be happy to get that agreed upon amount and I think it helps us in the long run. I honestly didn't realize I had this outstanding debt...I'm a bit taken aback and not very happy at the moment...I'm going to contact them tomorrow and see what can be done.  Good luck and I'll let you know how it goes.