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Kevin B | Which creditors to pay first? |
Please help settle a dispute between my wife and I. We are working on getting on a strict budget to pay off our debt. We have some bills that are current and we are making our payments on and we are about to go the "snowball" route to pay those down. Over the last year or so we have a few accounts that have been completely ignored and are now in creditors hands and are offering settlements or have been charged off.
So my question. We are about to get about $4000 coming to us and we have a debate on how it would be best to spend the money. My wife says we should throw it towards our snowball plan to pay off some of our smaller cards. her logic is that we are already in trouble with the charge off accounts that it can't get worse, so lets just get rid of our current ones. I say to try to negotiate with our charge offs which are offering settlements, and continue making our snowball payments.
Which route is best? |
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mrbroe
|
Your wife's logic on this seems really sound. By insuring strong relationships with the creditors you still have on good terms, you put yourself in a significantly better position to recover positive credit in the long term.
Accounts delinquent over 90 days or over 180 days are pretty much just rotten eggs sitting there. They're rotten but they really don't go anywhere. In two years time, though they'll still be there, you'll ALSO have signs of positive relationships with other creditors to HELP offset some of these.
Mediocre credit is worth a whole lot more than poor credit, and you won't get nearly as many points from paying off a delinquent account as you will from staying on good terms with a good account. You may also NEED those good revolvers to assist in tougher times to come.
The collections agents will ALWAYS continue to offer you percentage deals to pay off a delinquent account. Don't jump at the first one. You will see them arriving in your mailbox for years. (You can figure out how I know this.)
Though you didn't ask, I would say that you would do yourself a real favor by not simply paying off those good accounts completely. Having open balance and active (but easily manageable) debt is a BIG help in the long run.
If you have a single VISA or Mastercard that you can still charge on, use it to buy all groceries and gas then pay it off out of cash surplus each month. Your credit score will recover VERY well.
So yeah. I'd vote for your ol' lady's idea. |
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jane c
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Id pay off the creditors first then do the other bills as the creditors could start to charge you interest for not paying and hence increase the cost of these which could end up in court. |
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rossmart34
 |
Better yet; contact the Consumer Credit Bureau. Most of their services are free.
They can consolidate all your debt; assign you an attorney for free to work with creditors; get you tax exemptions or payment plans; help you structure a sound budget.
When my sis-in-law had an accident and their business failed, they had some monster debt. The CCB did some things for them that seriously shocked me.
Call them.
Most people try to juggle until they are in real trouble...better to work at eliminating your debt before it gets out of hand. |
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brieisaninja
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Use the 4G to pay off your debt however you do it. Either way it will help you. |
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aquillaaggie
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I agree with her about the accounts that have been charged off, at this point there is really nothing more that you can do for those.
As for those accounts offering settlements, those need to be addressed before they get worse. If your budget allows for the current debt to be paid timely without penalty, I would focus the $4000 on the old debt and those accounts with the highest interest rate/penalties. |
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Niya
 |
Well, the first thing to keep in mind if you settle out on accounts and managing to negotiate amounts you do want to keep in mind for any amount over $600 you will be 1099 for that tax year... meaning it will increase your taxable income putting you in a larger tax bracket and if you do not have many credits or exemptions you run the risk of owing the IRS then so be cautious with that.... another with settlements it will reflect as settled in full for less than the balance remaining on the account - also if you do decide to settle make sure it is only on your charged off accounts, the reason I say this is because a settlement will automatically report as an R9 (which is a revolving charged off account) - if it is already an R9 not much of a change there, you just do not want to add anymore of those ratings, b/c those are the ones that will remain for 7-10 years regardless of a 0 balance owed.
If you guys have current accounts I would reccommend to do what you can to get your balance below 30% of its credit line on each and keeping it current --- the best way to rebuild your credit is by showing current payment history on active accounts and payment history is the biggest part of your FICO score - it also takes into consideration your balance compared to the credit line.
So if you can settle and are not concerned about having a larger taxable income or the fact it will report as SIF on your credit - then settle but at the same time still work on the smaller accounts that are still in good standing, those smaller accounts can help you bring that score back up!!! So if you pay them off that eliminates payment history, but get the balances down on those at least :)
Hope that helps :) |
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jimmyd
 |
Negotiate with the charge offs. The account will still show that it is unpaid until it IS paid....so it would be better to knock that down and eliminate the bad debt from your credit report. You are currently still in good standing with the 'snowball' ones as you refer to them....so why invest that money into something that needs the least amount of attention. |
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Jennifer
|
Hi,
I used "Credit Solution" to settle my debt and improve my credit score.They managed to reduce my debt up to 58% .It's legitimate.I came across this company on NBC News Special Edition.Check it out here:
http://twurl.nl/q8wgol |
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doubletap_downzero
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Everyday that you have outstanding debts or debt in collections IS WORSE. Your credit rating is ggoing into the toilet because of your collections. Get those taken care of FIRST. Even if it causes your accounts that are in good standing to keep higher balances (and take longer to pay off), you are killing yourself with the bad debt.
Bad credit is much worse than a high balance. Take care of the bad debt FIRST but maintain at least minimum payments on your snowball accounts so those don't fold either.
In the meantime, it sounds like you should cut up your cards so you can't use them anymore. "But we might need it for emergencies!" - OK, freeze it in a block of ice and keep it in the freezer. That way you still have the card but its not easy to get at.
Good luck! |
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DMG
 |
I am not sure what you mean by snowball payments. I have to agree with your wife in that the charge offs are already on your credit report. The damage is done. I would put some of the money away for a rainy day since you will probably have a hard time getting new credit, and then use the rest to keep out of trouble with the accounts in good standing. |
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Holly
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I say not pay any of it and go on vacation. no, just kidding... i think that her idea is prolly the better one. |
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bdancer222
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Paying off the charge off accounts won't improve your score at all. The damage is already done. Use the $4K to pay off current credit cards -- highest interest rate first. I know some recommend paying off the smallest balance first, but it really is smarter to pay off by the interest rate. The money you save on interest can go to paying off more debt.
After you get all your credit cards paid off. Then tackle the derogatory items. Start with the newest one and work back to the oldest. The older the item the less impact on your score. You can settle older accounts for less. Ask for delete for payment -- some will, some won't. Get any settlement agreement in writing and save it along with your payment proof, forever. Do not give collection agencies direct access to your bank account.
If you really work at it, you an probably be debt free in 2 or 3 years. |
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mkimkilop
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Pay them off get it overwith |
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