You’ve made up your mind: It’s time to tackle your debt. You have researched ways to get out of debt, perhaps weighing the pros and cons of snowballs over avalanches to pay off your debt faster. Maybe you’ve thought about calling a credit counseling or debt settlement agency, or even a bankruptcy attorney, to see what they can offer.
Before you decide on your plan of attack, though, there’s one crucial step you won’t want to miss. It can make or break your efforts to get out of debt: Get your credit reports and scores. (You can use Credit.com’s free Credit Report Card for an easy to understand overview of your credit report along with your credit scores.)
Here are three reasons why this step is so essential to your success.
[Credit Score Tool: Get your free credit score and report card from Credit.com]
You’ll have a starting point.
Any debt counselor will tell you that consumers struggling with debt often underestimate how much they owe. If that describes you, don’t feel too badly. You’ve probably just been focused on making sure you can make the monthly payments. But in order to create a plan to get out of debt you’ll need a list of all your creditors and what you owe. Your credit report can help you identify who you owe, along with recent balances. (You can get free copies of your credit reports each year at AnnualCreditReport.com.)
You may also find debts listed on your credit reports that you had forgotten about, such as collection accounts. Forget to include those in your plan, though, and your efforts may be derailed if those collectors suddenly decide to pursue you for payment but you can’t afford to pay them.
Plus, no matter which approach you choose to get out of debt, you’ll have to know what you owe. Your credit report can help you with that task.
[Related Article: Can You Really Get Your Credit Score for Free?]
You’ll understand how your debt affects your credit.
If you’ve been making your monthly payments on time, you may assume your credit is “good.” But, in fact, the balances you are carrying may be dragging down more than just your net worth; they may be hurting your credit scores.
You won’t know that by looking at your credit reports, though. Your credit report just contains information about your accounts, balances and payment history. It won’t analyze whether your debt may be too high.
Your credit score, on the other hand, will show you the impact of your debt means to your scores. For example, in our free Credit Report Card, one of the five factors that make up your score is “debt usage.” That factor takes into account how close your balances on your credit cards are to your limits, for example. As your balances on your cards approach the limits, your credit scores suffer.
Getting out of debt will usually help your credit scores in the long run. But in the immediate term, your goals — get out of debt and build better credit, for example — may be at odds. Take bankruptcy, for example; it’s not great for your credit, but it may be the fastest way to become debt free. Understanding where you are now, as well as how debt relief options may affect your credit, can help you make a more informed decision about which approach is best for you.
[Free Resource: Check your credit score and report card for free with Credit.com]
You can track your progress.
Paying down debt is usually a marathon, not a sprint, and most of us are going to need encouragement along the way. Monitoring your credit score each month is one way to get that regular dose of motivation. Over time, as your balances decrease, your credit scores will hopefully get stronger. But even if your credit scores suffer because you choose to settle your debt or file for bankruptcy, keeping track of your score can help you monitor your progress as you work to rebuild your credit and your financial life.
Image: iStockphoto
Gerri Detweiler Gerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com.
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My question is: My wife & I somehow have 3 Capital One credit cards, we only need one.
Will it hurt my credit it we pay off 2 cards and cancel them? So does cancelling a credit card hurt the credit score?
Thanks
Yes. Leave them open and never use them. Closing extra lines of credit drops your net value. For example if you had 3 cards with a $5,000 limit, your overall limit is $15,000. Closing the two would change your overall available credit from $15,000 to $5,000. Even though you may not have missed any payments on either cards the negative change in your overall credit will impact your credit score.
Hope this helps.
That sounds like a racket. There should be NO penalty for closing accounts.
Some of us would prefer not to use credit, but we are FORCED to use credit. If we don’t use credit, we don’t have a credit rating or record and are overcharged for home and auto insurance. It is automatically assumed that anyone without a credit record is irresponsible.
For the most part, I agree with your statement. I have known people who had demonstrated poor credit judgement, who then opened additional credit cards and re-distributed their debt — as they ended up with credit cards with lower credit utilization, their credit score went up by about 100 points. Mind you, to keep their good credit score long enough to use it, they had to have enough discipline to not run up the balances on all their cards…
Having credit cards and not using them or using them and paying them off, shows monetary discipline and / or restraint. Lack of credit cards shows neither ;-/
I would be interested in hearing another alternative.
Why do some alleged credit experts say to pay off but not close the account and others say cut them up and pay them off and close the account? How do we know who is right?
The credit counselors generally advise based on the discipline, or lack of, for closing accounts. As previously mentioned, paying off a card and closing can ding your score. If one has the discipline, better to pay off and toss the card in a drawer. Problem is many lack the discipline which is why they are talking to a counselor. They will end up running the card back up and owe more than before. For them, the score ding and closing is a substitute for actual discipline but is a small price for getting debt under control.
I disagree with never using the cards again after paying them off. If you stop using them, the credit card companies can cancel the cards due to inactivity – which would create the same problem you would have if you had cancelled the cards. I have seen this scenario play out with many of my clients. Instead, set a reminder to use each card once every 4 months on a small, normal purchase of yours and then make sure to pay it off immediately. This way your accounts stay active and your credit utilization ratio isn’t affected. Good luck!
I have a couple of credit cards that charge a monthly fee. I would rather pay those off, close them, and take a temporary hit on my credit than have to pay a monthly fee.
My instinct with a card that has some monthly fee is to run in the other direction. Depends on if you want to keep. Pick the most expensive and pay it off. If you don’t want to keep and low limit, close it. If high limit and you would like to keep, pay it off and then contact the issuer to see what they will do on the fees. If nothing, close it. Many times this will get a retention expert involved that will deal on dumping fees and any other benefits you can get. Do this from a position of strength with a payed off card since the issuer knows you can burn the card then and there.
It is worth a call to them about the monthly fee, a lot of times they can waive the fee to keep you as a customer rather than losing your business all together…it never hurts to ask or try.
I disagree with never using the cards again after paying them off. If you stop using them, the credit card companies can cancel the cards due to inactivity – which would create the same problem you would have if you had cancelled the cards. I have seen this scenario play out with many of my clients. Instead, set a reminder to use each card once every 4 months on a small, normal purchase of yours and then make sure to pay it off immediately. This way your accounts stay active and your credit utilization ratio isn’t affected. Good luck!
Tom – Closing those accounts could hurt your credit scores depending on what it does to your utilization ratios. On the other hand, I hate to see anyone held hostage by a card they don’t want! If they aren’t charging you an annual fee, then I wouldn’t close them. But it they are, consider closing at least one – once you’ve figured out if the possible hit to your credit scores is acceptable.
All credit cards are not equal. Master Card, Visa, and their like fall into the category that most people think of when credit cards are mentioned. There is also ultra high interest credit cards. These are very often issued by a store. Very often they come with great incentives to open one up i.e. no interest payment for a year on your new furniture, $50 off your first purchase, or another similar come on. The hook is that if not paid off within the time frame, you are paying 29.99% interest or greater! Just having one of these ultra high interest “store” credit cards does ding your credit score. By all means consider closing these accounts.
Closing out credit cards might drop your credit score. You are evaluated by the amount of credit available (credit limit) to you versus the percent of it you’re actually using. 30% usage on each card would supposedly be a good thing in the eyes of the credit-score god.
“First thing to do” is never get into debt in the first place.
This is easily achieved simply by
spending well within your means!
I’m guessing that you’re at least 55 years old and bought your first house for $20,000. Anyone younger than the baby boomer generation faced very different challenges than your generation -
My question is: a debt (that I do not dispute) has recently been sold to a collection agency. May I contact the original creditor instead of the collection agency? I do wish to pay the bill, but I have not been able to reach anyone from the original company. If I contact the collection agency to get that information, what are the consequences? If your account was given to a collection agency, does that automatically mean that this item is on your credit report? May I request the original creditor remove the item from my credit report if I make payment arrangements?
Unfortunately, the debt is no longer owned by the original company, it was sold to the collection agency. Rather than try to collect old debts, companies sell batches of it to these agencies for pennies on the dollar. They will sell $100,000 worth of people’s debts for $20,000 and write off the 80k as uncollecible losses.
Now the collection company will do whatever they can (sometimes illegally) to collect as much of that 100,000 as they can get. So now you have the original company marking your credit report, and the credit agency as well if you do not pay them.
Ok. So Dirk, then does not that show exactly where the original company should be the one sending out these 1099′s (they just wrote off 80k as noncollectable losses). At the very least, the collection company is not entitled to the entire amount which is what they are putting on these forms – they surely have some type of accounting balance sheet showing they paid xx dollars for this xx portfolio that included these 20 accounts so where is it legal and ethical for them to claim the full dollar amount (which undoubtedly includes fees and interest) and even worse the probability that you will receive another 1099-c down the road for the same old debt. If the original creditor did issue a 1099-c, and sold the debt, hmmmm lotta double dipping is all I see.
– I read somewhere — that as long as you never ‘agree’ in any way to make payments to the collection agency – you are not legally obligated to pay them.
– You were legally obligated to pay the original business/person. When the original business/person wrote off the debt (your bill), you legally quit owing that bill.
–The trick is that You must never agree to a payment plan or (i’d even make certain I never spoke to the collection agency verbally in case they are recording the conversation.) — all you should say would be something like this:
I request that you halt all phone contact at this time. IF you must contact me, you should contact me via certified mail in writing or subpoena me.
–Many times the state law requires that collectors halt harassing phone calls if the person makes a statement above. & many times the collectors will never take the individual to court – too expensive.
- as stated above – I’m simply remembering things I researched many years ago. Be certain to do your own research
A word of warning: Be VERY careful of the advice you follow. Much of what you’re advising is horribly wrong, very misleading and terrible advice — all of which can be detrimental to anyone who follows it:
WRONG. Just because you never agree to make payments doesn’t mean you’re not legally obligated to pay. If the collection is valid and they decide to sue, they can — and many do. We see evidence of it daily. If this happens, and a judge orders you to pay it to the collector– that’s called a judgment and it will end up on your credit report and cause even more damage.
WRONG. If this statement were true, the collection industry wouldn’t be a thriving $13 billion dollar industry.
We agree, you should never agree to a payment plan unless you get it in writing, but in most cases collection companies aren’t interested in payments — they’re not lenders, they’re collectors. In most cases, it’s better to settle the debt with one lump sum payment for less than the full amount.
This is horribly WRONG. Collectors sue people every day, assuming you’re not going to be one of them is a very bad idea.
This is the best advice in the bunch. We agree wholeheartedly. Beware of who’s advice you follow, make sure it’s a trusted source. Following this kind of advice can be detrimental and cause much more damage to your credit.
I have a question: Last week I received a letter from a debt collection agency regarding a medical bill from 6 months ago. When I received the original bill from the hospital, I responded to them, requesting that they first file the clain with my insurance. I did not recieve a new bill nor any other correspondence from them. I called and left messages, with no reply.
They have subsequently sold the account to a debt collection agency, who is requesting payment (in writing). May I contact the original creditor and make payment arrangements with them or do I have to deal with the debt collection agency? I do not dispute the validity of the debt (although I do dispute the amount since it does not seem to have been filed with my insurance) and I do not wish to deal with the collection agency.
Since my debt has been sold to a collection agency, does that automatically mean that this is now on my credit report? What are the consequences if I contact the collection agency to get contact information for the original creditor? May I request that they remove the debt from my credit report if I make payment arrangements?
Thanks!
TW – You can certainly try. I wrote about that in this article: Reader Stops Mysterious Medical Bill From Damaging Her Credit If you have health insurance and the hospital was a participating provider, I would also ask your health insurer for information to make sure they aren’t “balance billing” you.
As for your credit reports, I’d suggest you check all three to see whether they have been reported. Sometimes a collection agency will give you a short period of time – maybe 15 or 30 days – to pay a collection account before reporting it.
will settling an account for a lessor amount hurt me in the the long run? I’m already behind and the collecton company has offered me a settlement.
Phyllis – I suggest taking the settlement. The collection will remain on your credit report whether it’s paid in full or settled for less than full amount.
Phyllis — Beth is right. If the account has already made it to collection status, your credit has already taken the hit, regardless of whether or not you pay in full or settle. In which case, it’s best to settle for less if you can. Keep in mind that the collection will remain on your credit report and while some consumers would argue the point of paying it at all, it’s still wise to do so if you can. Opting to not pay can actually land you in court with a lawsuit and possible judgment. If the judge awards the collector and a judgment is filed, that judgment will cause even more damage to your credit for another seven years. The shorter answer here? Settling will not hurt you in the long run, it’ll actually save you from future credit headaches to settle and put it behind you.
Phyliis – I believe I answered your question in this story:
Debt Collectors Killing Your Credit? Here’s What To Do
If you still aren’t sure after reading that, let me know.
how can I monitor my credit score daily?
Unfortunately, we don’t offer a daily credit score monitoring service at this time, but Credit.com’s Credit Report Card does provide monthly credit score updates to help you monitor and track your credit score. It’s a free service too.
Something else to keep in mind is that because credit scores are based on the information reported in your credit reports, your credit scores only change when information in your credit report changes. Generally speaking, credit scores tend to fluctuate a few points from month-to-month but unless there’s a significant change in your credit reports, the changes are usually very minimal. If you’re trying to improve your credit scores, remember that credit scores increase gradually over time as you gradually begin to change your credit management patterns.
Are you looking to monitor your credit score or your credit report?
There are credit monitoring services that are available through most banks and credit reporting agencies (e.g., I use Transunions’ service) — mind you, they typically charge between $5 – $20 (or more) per month.
In the case of the service I use, if there are any changes in my credit report from any of the big 3 credit reporting agencies, I receive an email — the primary reason for this service is to monitor for fraud. Actually, now that I think about it, I am not notified of every change — just the ones that would negatively affect my credit (e.g., new credit accounts, inquiries from credit card companies for new credit, etc.).
Regarding the credit score, while my credit report from all 3 credit reporting agencies is monitored, I can only receive the credit score from the agency that I use — I guess if you pay enough money each month, you can get scores from all of the agencies…
Hope this helps.
I am a retired widower. No mortgage, no car payments. I have just two credit cards. I pay them and all other bills on time or early each month. I recently applied for a sizeable bank loan for the entrance fee to a retirement village, (my house was on the market for 8 months and did not sell). The bank told me my credit score was just 278. Their rep said that I did not have enough credit history to raise my score. This is perplexing. How can this be? I do have two red marks on my credit history. 5 years ago, at a local hospital I had two separate minor surgeries. I refused anesthesia for each, yet the hospital charged $810 for anesthesia during each surgery. I protested, they would not budge and turned it over to a collection agency. Medicare pays a flat rate, they did not care. Eventually I paid it to keep my credit score intact. But there is no way to contest a charge once it is urned over to a collector. This will remain on my record for another two years. Is this why my score is low (but passable)? Thanks. Eugene Failor
Gene –
I would guess it is the combination of factors that are contributing to your score. (Though I do wonder what kind of score they were using since the FICO score range is 300 – 850.)
With regard to the collection agencies, you may want to try disputing them with the credit reporting agencies since you did have a legitimate dispute. If the collection agencies don’t confirm them the CRAs must remove them. If that doesn’t work, I’d suggest you talk with a consumer law attorney to find out if you have a case for credit damage. We have more information on disputing credit reports in this article: A Step-By-Step Guide to Disputing Credit Report Mistakes
When is transferring a balance from one credit card to another a good thing? I have 3 credit card balances, each at 12%. 2 are below 6000, one is at 12000. My real dilemma is this: Is opening a new account to transfer one of those balances and paying the transfer fee, worth a potential hit on my credit score that i will get when the new card does a credit inquiry? (the card I’m interested in is 18months at 0%)
My finance and I went to get a home loan for a house we will live in together after we get married. It is a nice modest home. I have great credit with nothing negative at all on it and she has no credit at all she does has always dealt in cash and did not beleive in debt. Yet it was almost impossible for us to get a loan. I had more than 4 mortgages already-12 to be exact but they are on commercial loans that I have equity and cashflow out of that rental properties not anything I am living in myself. I also have 3 credit cards with 10-25K limits on them and paid off in full each month and the lender told me I had to combine mortages into less than 4 total before i could get another one at their bank and that my finance had to take out debt for 2 years with credit cards or car loans before we could qualify– what a crock. I have a 800,000 net worth and we could not even get a measly 60,000 mortgage.. i went back to the small bank I deal with and instead of combining mortages and spending thousands for appraisals and crapp– we just did a in house loan with a little more interest but no crapp to deal with come in and sign a few forms and leave with a check in and out and saved alot of time and hassles. I have to say I appreciate the banker that trusts me and does not make me jump through so many hoops. I guess that is why I deal mainly with just 1 bank. A good woman is hard to come by, but so is a good banker. Once you find one of either you should stick with them….
AL – one other option that your lender might not have mentioned is adding your fiance as an authorized user on those high limit credit cards. Authorized user accounts show up in credit reports just like the primary cardholder, and get the same benefit/credit from how the account is managed by the primary account holder. If the accounts are in good standing, have no negative payment information, and have low balances in relation to the credit limits (which it sounds like yours do), then this would help her build a credit history almost “immediately.” The other good thing about authorized user accounts are that they’re a win/win for both parties — the authorized user is not legally obligated for charges made on the account. And if the primary cardholder (you) chooses not to give him the card when it comes in the mail, then you never have to worry about the authorized user running up charges on the cards w/o your permission. It’s a strategy that many parents use for their college aged children, and for couples just like you who either have a spouse/fiance that has no credit, or has poor credit and is trying to improve. You can read more about this topic here:
Can an Authorized User Hurt Your Credit? http://blog.credit.com/2012/06/can-an-authorized-credit-card-user-hurt-your-credit/
Piggybacking to Boost FICO Scores: Does It Still Work? http://blog.credit.com/2011/10/piggybacking-to-boost-fico-scores-does-it-still-work/
Note: Not all credit card companies report authorized users to the credit bureaus (many don’t!). Call your credit card company first to ask if they ‘report’ authorized users otherwise it may be an exercise in futility.
This is very true, not all lenders or credit card issuers report at all. And some may only report to one or two credit reporting agencies. The bottom line is that credit reporting is entirely voluntary so it’s up to the individual lender. If you want to know for sure, it’s not a bad idea to call and ask the issuer.
I have to disagree with you on the statement that “many don’t!” report authorized user accounts. I’d argue that it’s quite the opposite actually, and that there are more credit card issuers that report authorized user tradelines than there are that don’t. Some may not report, but many do.
I have conflicting answers to this question. If I pay off my debt how does it improve my score/credit/credit report? I find many articles saying it will not improve at all, will be worse because I settled and didnt pay my bill in full, and will stay on my report regardless of paying off or settling.
I am only tackling my debt (which is small misc bills like ATT and a few credit cards nothing over $3k not counting student loans of $17k) because I do want to buy a home.
What’s the verdict?
Paying off a collection won’t improve your credit/credit score — it’s the fact that the collection happened that hurts. However, paying it off (or settling it) will keep the damage from getting worse. By worse, I mean a creditor suing you and filing a judgement against you (another severely negative hit to your credit report and scores) and possibly garnishing your wages if it’s legal in your state.
What you’ve read about it not improving at all is accurate, and the fact that it will stay on your report regardless of whether you pay or settle is also true. Paying in full or settling a collection doesn’t remove it from your credit report. The fact that it happened is what matters to your credit and credit scores, and it will remain in your credit report until the item expires as defined by the credit reporting statutes of limitations. For collections, that means seven years from the date the account went into major delinquent status (usually at the 180 day late mark). There is no difference between paying in full or settling the debt for less, in which case — it makes sense to pay less and settle if you can.
Credit.com, “In Debt” asked about paying off debt. No mention was made of collections.
Good point, SG. Thank you for the feedback. However, if you read the question in full context, with the reference to settling versus paying in full and the mention of “misc bills like ATT” (which wouldn’t be reported in your credit report unless it were in collection status), it implies otherwise.
I read all these comments, I still don’t know what to do, I’m in collection (cc debts over 180 days late), I been able to settle only 2 (the small ones), but still have others between 3k to 7k, my main concern is if the collector decide to take the collection to the court, is it usual for collector take to the court debt balances up to 7k? , I’m willing to settle all of them, but I have not enough funds, I believe that I cannot do more settlements at least this year. Please comment. Thanks
At least you have started to settling your debt by paying off the small ones. As long as you are paying the minimum on the bigger one(s), you should not have any problem. However, try to pay more than the minimum.
Paying credit card balances off every month is the smartest way to go, so kudos for that. We’ll have to agree to disagree on the cash only mantra though. The cash only principal is great in theory but for the average consumer, being able to pay cash for large life purchases like a home or car isn’t usually an option. The thing about going cash only that is it isn’t always the most cost effective way to manage your finances, even if you do have an endless supply of cash. For example, if you’re able to qualify for 0% financing on a car loan, wouldn’t it make more sense to take the lump sum amount and put it in an interest bearing savings account? This is an extreme case, obviously, but the point here is that credit allows you more flexibility to leverage the money you have. And the biggest downside to “cash only” mantra is that in the event that you do need credit (to buy a house, for example), your options are limited. Many people would rather go the cash only route, and it’s definitely a personal choice– but it’s also a choice that has disadvantges as well. Credit gets a bad rap but it’s not necessarily “credit” that’s bad. It’s the choices we make and how we manage that credit that can either cripple us or help us leverage our financial lives to their fullest.
“For example, if you’re able to qualify for 0% financing on a car loan, wouldn’t it make more sense to take the lump sum amount and put it in an interest bearing savings account? ”
Not necessarily. Usually, car manufacturers offer rebates in lieu of zero-interest loans.
True, but at one point in the recent past, many consumers were able to take advantage of 0% financing incentives offered to the credit elite (consumers with excellent credit). The question was more of a hypothetical question and when taken in context with the full explanation, the point we were making was that there are downsides to the cash only choice:
“As long as you are paying the minimum on the bigger one(s), you should not have any problem” — unfortunately, this isn’t the case with collections. Paying the minimum only works if the account hasn’t gone to collections. If it’s in collections, sending minimal payments (or what you can afford) won’t stop the collection agency from suing.
Luis – The larger the dollar amount, the more likely a collector will sue. The chance of them pursuing the debt through a lawsuit is much more likely on a 3-7k debt than it would be on a debt for a few hundred dollars. Believe it or not, there are collection companies that pursue collections for amounts under $10. Example: A Debt Collector Came After Me for $8.97
I don’t want to discourage you though. Settling the smaller debts is a great step, but if you can’t afford to settle the larger debts right now, setting up a payment plan is a bad idea.
For one, most collectors prefer a smaller lump sum settlement payment over small monthly payments, and they aren’t legally obligated to negotiate a payment plan that fits your budget. In this case, if you are able to afford some small amount, take that money and set it aside each month until you’re able to save a larger amount and have more leverage to negotiate a settlement. For more about payment plans and why collectors may demand full payment, this article will help: When a Debt Collector Demands Full Payment
In severe cases where consumers are truly under financial hardship and a collector decides to sue and files a judgment against you, consulting with a bankruptcy attorney would be the next step. It’s not something we recommend unless it’s a very last resort, but in some cases… it’s the only option left.
Several years ago (6) I lost my job and defaulted on a credit card, a phone bill and a few other small debts. I have had debt collects sending me letters trying to collect which I still can not afford to pay back. My question is how long can the collection agencies keep selling these accounts to other collection agencies because every time I have looked at my credit when the new collection agency takes over it shows up on my report as a new debt. Can this go on indefinitely, it is like a cycle. What can I do any suggestions.
If a collection company sells your collection to another collection company (which happens quite often), the new collection company will report the collection in your credit report. Often times this can cause one collection to spiral into several collections in your credit report (which is what’s happening in your case). Gerri Detweiler wrote about this problem in-depth in her article: Credit Report Double Jeopardy Means Double Damage . This should help explain everything you need to know (and what to do when it happens to you).
For information on how to handle these collections (and how long they’ll be reported), here are several resources that should help:
– How Long Does Negative Information Stay On My Credit Report?
– What to do if a Debt Collector Calls
–The Dos and Don’ts of Paying a Debt Collector
–Debt Collectors Killing Your Credit? Here’s What To Do
–The 7 Biggest Questions About Debt Collections & Your Credit
–Seven Ways to Defend a Debt Collection Lawsuit
A “system” is a creation. Once you are in the system, they got you where they want you. Zero APR for one year is the introduction to the system. In the past, I had a Sears CC and used it for the extra reduction on sale prices on items I needed AND would pay it off next billing cycle. In the past, I had about $1,000 to $1500 in balances because I bought a set of auto tires. However, I ended up paying it off and never used the card again. I also has a CC/debit card and don’t use the CC option. My mantra is: Cash and carry. If I don’t have the cash to cover an item I need, I can get it another time.
i have credit card balance of $32000 in several cards and if i want to settle by $20000 in cash at one time is it possible and how
Settling your credit card debt requires you to have missed 3 or 4 monthly payments at a minimum. If your at, or past that point, settling the 32k for 20k is doable depending on who your creditors are, who they have collecting for them, or if the debts were sold off to debt purchasers. You may even be able to settle for a great deal less than the 20k.
How to settle each account will be similar from one account to the next. Post a comment reply with the names of each original creditor, when last paid, balance owed, and who is collecting now (if not your original lender), and lets go from there.
It’s your debt. Pay it. It’s called integrity!
we just paid off 4 credit cards, closed 2 and dropped our credit limits, would it be wise to increase our credit limits back up to the max because we are getting ready to refinance our vehicle and then after we get a low interest rate, drop our limits back down until we need to use our credit score again for a loan?
I have a common name and my credit reports have so many error’s listed. I’ve tried to clear it up with reporting companies and have just given up. I have “Jumped thru hoops” with credit reporting agency’s for years trying to clean up the errors not incurred by me and it’s just a waste of time. Those companies can ruin a persons credit without checking their info but let that person try to clear it up and you have to fight more garbage than the IRS has tax laws.
Gee, what how did our ancestors live on the cash system? The store owners trusted their neighbors and carried an account for them which they paid off as they could afford to. They bought land, built houses, bought farm animals and seed without a credit card or credit score. People lived okay back then. Look at how messed up life is now!! Foreclosures, bankruptcies, even getting a job could be dependent on your credit score or credit record — since when do you need a perfect credit score to do a menial labor job? Yet, people are getting fired or not hired at all because of their credit scores/records. We’re doing it to ourselves — there’s no trust anymore in our fellow man, no respect shown to people. IN GOD WE TRUST — not the banking/credit industries!!
I co-signed for a car for an employee. She and the salesman proceeded to use my credit for two or three cars, without asking me. That resulted in multiple requests to the credit companies. I got 20 or more rejections because of her credit, not mine. Now my credit score has fallen over 150 pts. What can I do? I’ve written to them to try to remedy this and now one of them wants me to file a police report.
few kids are in serious problems due to medical bills which can reduce many people to ruins despite the person who stated that you can avoid all debt by spending within ones means. So, if you’re going to inherit a significant windfall, I’d say stuff the creditors over undue/over charging medical bills.
Everyone worship at the alter of the FICO. Credit score only tells you how well you borrow and pay of debt. It is in no way a sign of how well you do at building wealth. Credit Cards = Slavery.
They can be, but it really depends on how you manage the credit cards. Paying interest isn’t ideal and there are millions of consumers that DO pay their balances off in full each month, and avoid paying interest at all. The other side of that is overwhelming credit card debt. Building wealth is about living within your means and knowing how to leverage the money you do have to your best advantage. Credit is an important part of that. Ignoring the credit aspect in your wealth building strategy can limit your options significantly.
I lost my job 2 yrs ago and have been working contract since that time. I am making less than 1/2 of my previous income but have continued to maintain my mortgage and cc pmts. From time to time I have had to use my cc to get by. Prior to losing my job I had contacted my creditors to reduce my interest rates and did not get anywhere with them.
My question is this – If I contact the creditors now to request an interest reduction and let them know of my reduced income will they be allowed to close my accounts and demand payment in full? I have been doing my best to avoid bankruptcy. I incurred the debt and want to pay it off, I’m just asking that they help me out somehow.
I have a loan that will be paid off in about 3 months which will free up addtl money for pmts. THANKS
Melinda – To be perfectly honest, calling the credit card issuers and explaining the situation could lead to them closing the cards or significantly lowering the credit limits as a precautionary action to minimize their risk. They key word is “could.” It may be best to withhold the information about your job loss and just request an interest rate reduction. If the account is in good standing and has a solid history (and you’re a longstanding customer), they may be open to lowering the interest rate.
Struggling with debt, especially after a layoff, isn’t easy. If it gets bad enough and you’re seriously considering bankruptcy, we’d advise exploring a few more options before going the bankruptcy route. It’s worth contacting a consumer credit counseling service. They’ll be able to review your individual personal financial situation and debt load to determine whether or not you’d be a good candidate for a DMP. If you are a good fit, they’ll work with your creditors to lower you interest rate and lower your monthly payments to one monthly payment you can afford. The caveat here is that the accounts will be closed and you won’t be able to charge on them while you’re in a DMP. If a DMP isn’t a good fit, and bankruptcy is your best option — they’ll be able to tell you that as well. A consultation is free, but make sure you choose a consumer credit counseling service that is accredited by the National Foundation for Consumer Credit Counseling.
For more information on debt relief issues, here are three resources that may help:
1. Is a Debt Management Plan Right for You?
2. How to Avoid a Debt Spiral
3. 5 Ways to Get Out of Debt: Which Will Work for You?
I have a collection for a medical bill. The collection company is telling me that they can only settle it for 20% of the balance because the hospital (original company) says they can’t go any lower. Is that true? What I have read about collections, it would seem that the collection agency isn’t controlled by the original company because they already bought the debt. How can I get them to negotiate better and stop playing me for a fool?????
Tricia – not all collectors own the debts outright. Meaning, some companies commission (or hire) collectors to collect on their behalf so the third-party collector wouldn’t own the debt if this were the case. If they’re offering a settlement at 20% of the original debt, that’s actually a pretty good deal. If you’re dealing with a collection, here are a couple of resources that can help:
I was told that debts past the statute of limitations where I live are better off unpaid. They said I should just tell them never to contact me unless it was serving papers on a collection lawsuit and use the statute of limitations as my defence if any tried suing. Are these debts indeeed uncollectable? And if they are no longer valid could repeated attempts to collect after being to told not to contact be considered harrasement?
If the statute of limitations (SOL) has passed you’re not legally obligated to pay the debt. The SOL will vary from state to state so you may want to check with your state attorney general’s office to be sure that the SOL has in fact passed. The laws also vary depending on the type of account (written contracts versus open contracts, for example).
If the statute of limitations has passed, you can respond to the collection notice with a written letter stating that the debt is past the statute of limitations and request that they cease all contact. Make sure you send your letter certified mail and keep a copy for your records. This notice only applies to the current collector; if they sell the debt to another collection agency, the notice won’t apply to the new collector. The point here is that notifying the collector won’t stop future attempts from other collectors if the debt is sold. In which case, you’d have to repeat the process.
Something else to keep in mind — just because the debt may have passed the statute of limitations to sue, it can still be reported in your credit report. Most negative information will remain in your credit reports for 7 years, for collections it’s 7 years from the date the account first went into serious delinquent status — usually at the 180 day late mark.
What is the statute of limitations on bill collections? I had a contract with a health spa about 18 years ago that was never fulfilled. several months ago, i started receiving collection notices from a collection agency for this bill. I also had a credit card with a large company about 10 years ago, that was also unresolved. i recently started receiving phone calls and letters for this bill from a collection agency. how many years can the company try to collect and report on your credit and then sell to a collection agency who can also try to collect and report on your credit. Can they continue to report a debt on your credit for so many years.
not sure if this is true… BUT… I heard that if there is any activity rather you do it or they do it the years start over again… AND there is no time frame… I have a question myself… that states this… but I heard that there is no time frame that they can come to you at anytime… even after the “7 year” time frame… that it will always be there… again this is not 100% I heard this…
My son is on social security disability because of very severe medical issues. He had a loan with a company and wound up not paying his debt to them. It was turned over to a collection agency and because of his health issues and lack of income, he never paid the debt. He was more stable last year and began paying a monthly amount to the collection agency. Last month, that collection agency turned it over to another collection agency and he continued his monthly payment to the “new” company. Now, however, another collection agency has contacted him for the same account but a much higher amount of money. He told them he was paying that account to another collection agency but they were very rude, threatning and implied it was going to court and a judgement would be against him and the court could settle it. Any suggestions on how to handle this as the loan is getting closer to being paid off and he is positive that he had only one account with the original company. Thanks for your help!
Jackie – Please post any additional information you have about the last debt collector that made the threats. Your post describes potentially one of two things:
1. Debt collection abuse
2. Scam posing as a debt collector
I want to help you get to the bottom of this, but it would be good to confirm who and what you are dealing with first.
To get a better understanding can the Credit.com help in informing you whether you should file for bankruptcy, because that’s the point where I’m at whether or not to go that route.
A few years ago I was in a lot of debt. I had it under control but it was getting harder and my payments were all going to interest. I saw an online debt solution place and called. To make a long sad story shorter , let me try. First they told me to stop paying on any debt I had, to sign it over to them. They sent me papers to fill out and sign. I made them a power of attorney and quit paying my bills. I had to pay them $162.00 a month and I was promised to be debt free in a year and half or sooner. The thing is I sent them $162.00 for 15 months and was told my creditors were being paid off. No one was calling so I believed them even when I called them and asked for proof. When I got to calling everyday I got a letter saying not to send any more money that it was almost all paid. Then I got a letter saying that there would be no more calls or letters from them that they were not going to be in business any longer. I never heard from them again and I called the places I owed and they had never gotten a dime from them. I still owed them and had paid $162.00 to this bogus company for 15 months. To sue them I was told I’d have to file in Florida where they were based and if they’d closed I’d never get my money back. This line gives the name of Time Debt Solutions, so beware of places like this . Thanks.
How many years do they have to collect from you. My health insurance told me if they try and bill you after a year they cant. Does that go for everything
I have heard that settling on a balance with a creditor can cost u with taxes. Does the creditor 1099 you for the balance they write off?
Yes they can and many do, and it’s usually issued as a 1099-C. Credit.com has covered this topic extensively (click here for a full list of articles on 1099s), or you can reference the following two resources for a detailed overview on the topic:
– Infographic: What to Do if You Get a 1099-C
– What is a 1099-C? Your Top Questions Answered
if most people need and wait for that tax refund… then its best to pay somethng else off first before getting to that particular one?
Why is it that cash advances on a credit card are paid down last (purchases are paid down first) I was told that the new credit card regulation to were to higher intrest first.
I have paid off all my debt, by getting my credit report and paying off everything I saw on it, and paying my bills on time. How long will it take for my credit score to start trending upwards if I continue paying everything on time?
I heard it will take up to 6 months to show better scores
Its been two years now that i have started my plan of attack to to payoff my debt worth 40G down to 15 G and has been unemployed since two years ago with an income from VA compensation only worth 560 a month ( recently has increased to $1300 a month) plus an stipend from education benefits of $2,175 a month plus unemployment benefits of $800 a month. The money i received monthly is not an “INCOME” when applying for a car loan. I bought a car from a dealer and honestly told them that i am unemployed but I am a full time student and i am going to use my stipend and education benefits and other additional income to buy a used car worth $13,000. I got approved and am only paying $210 dollars a month for 72 months. I am only renting $300 dollars in one little room with free cable, internet and utilities.
Here’s my question: How come I am always being denied when i applied for REFINANCING my car? I wanted to get a better and lower % rate so I could pay off my debt the sooner. My credit score as of now is FAIR (659) better than two years ago of 550 credit score. What would be the best plan for this?
I paid off my mortgage yrs ago and have not taken any loans for my property. This seems to have hurt my credit score. It seems none the reporting agencies can understand someone owning their property free and clear, and I am hurt because I paid off so long ago my credit reports state that keeping a mortgage up to date is important and I have no experience in this area, so I am slammed many points for The American Dream of owning and not owing.
What are the “rules” i should follow when thinking of a Balance Transfer? I’m confused on several items: Transfer fee, is it worth the transfer to add more to your debt? Credit Score: Is it worth getting a credit score hit because you’re opening a new credit card account? I have $7000 balance on one card, (11.99 interest), 4500 on another(16.99) and a 11000 on another (11.99) I am thinking of combining the lower two into one with a balance transfer..at 18months 0% interest. Any comment or direction would be helpful, thanks
If your goal is to get out of credit card debt, a balance transfer card is a good option — but only if you’re able to pay off the balances (or a very large portion of it) during the 0% introductory phase. The key to making them worth it is to not use the other cards and focus on paying down the debt you transfer to the new card. As far as balance transfer costs, you have to weigh the cost of the balance transfer fee to make sure it’s worth the cost in comparison to what you’ll save in interest costs. In most cases balance transfer fees run between 3-5%, which makes it less expensive than the amount you’d pay in interest if you continued carrying those same balances on your other cards. As far as the hit to your credit score, in the grand scheme of things it will most likely be a wash. The inquiry and new account open may lower your score, but the new credit limit will most likely lower your revolving utilization percentage, which would increase your score. For more on both topics, here are two great resources:
my question is…. with a credit score low and a brankruptcy back in 2005 that has been over and done with… chapter 7 … (and I know up to 11 years for it to be on my credit report) and with some not so good payments histories after the bankruptcy… with any where from credit cards, bills, drs. hospitals… where do you start?
I want to tackle this but not sure where to start… AND is it true that after 7 years most things come off the report… if so… I have things that have like 2 years to go… do I tackle them as well… or is it best to tackle the others first