A common concern you may have when searching for the best way to get out of overwhelming debt is what can happen to your credit score. What follows will help you understand credit score impacts that relate to the most common and legitimate debt solutions. This page will also help to dispel some myths that get regurgitated across the web.
There are far too many misconceptions (and incomplete summaries), about credit reports and the harm that comes from credit counseling, settling debt for less than what you owe, or how bankruptcy will stop you from getting approved for credit.
After more than 20 years of helping people with debt problems, I can say with certainty that there is too much focus on the credit report and credit score when what is being sought is debt relief. Focusing on getting out of debt with the right tools comes first.
Your credit reports and credit score will heal and bounce back given time. And this is true no matter what path you take to resolve your debts. How little time it takes for your credit to bounce back, or to get approved for different types of financing, may surprise you.
Credit scores open doors
Along with the recession came more strict credit risk modeling by lenders. This caused a reduction in lending because more attention is being given to lending criteria other than your Vantage and FICO credit scores. This means that you’re DTI (Debt to Income ratio), if unhealthy, will prevent you from getting approved for new credit, even if your credit score is excellent. If you have too much outstanding debt, no matter if you have always paid those bills on time, you get declined for new credit.
The same tightened lending criteria is likely to come from the economic upheaval resulting from the COVID-19 pandemic.
Your 720 or higher credit score will be something you can be proud of, but if your credit card debts have you stretched thin from one month to the next, your credit score has lost its utility function.
See the video below to better understand the affect on your credit score by different debt relief solutions, plans, or programs.
Debt relief and your credit score
If you are looking into debt relief programs and landed on this page, chances are you’re reading because you want to know what happens to your credit report and credit score if you use credit counseling, debt settlement, or bankruptcy as a way to resolve debt. That means you are in the least likely position to spend, or to be seeking out new credit products, either right now, or for a couple of years to come.
The three most legitimate debt relief intervention options do indeed impact your credit report and/or credit score. Each method hurts your ability to get new loans, or certain types of loans, and for close to the same amount of time. So stop thinking about your credit score, and start thinking about getting out of debt in the quickest and most affordable way.
If you are concerned about how each different type of debt relief program will work for you now, and still allow you to accomplish credit goals in the future, you will be well prepared after reading this page.
I am going to lay out the credit report, credit score, and access to new credit product impacts from debt relief programs in the order that most of the public perceives as the least confrontational, and end with the “B” word. Each comparison is generalized, but in a way that will help you understand your credit needs for the next 3 years, set beside the debt relief programs you are on this site to learn more about. The comment section at the bottom of this page is a great place to post your questions and concerns and get feedback in order to take the information and apply it to your specific situation right now, but with an eye on your credit future.
Credit counseling hurts your credit report, but not your score
Your previously active credit cards will be updated to show your account was closed by credit grantor (unless they were already closed, or you get proactive and close them yourself prior to consolidating with a credit counseling agency). Recently closed accounts can have a slight impact on your credit score, but typically only a few points.
While enrolled in a credit counseling program it is generally very tough to get financing of virtually any nature in the first 12 months. This is because many creditors will inform the credit reporting agencies that your account with them is part of a consolidated repayment plan. Because credit counseling agencies will normally want to have all or most of your credit card debts enrolled in the plan, this type of reporting could appear several times across your credit report.
Debt management programs with credit counseling companies run on average 4 to 5 years. This can mean you are locked out of new unsecured credit products, like new credit cards, for this entire period of time.
You may be able to get financing on a vehicle or even purchase a home, modify an existing mortgage, or qualify for a student loan (either your own or parental) shortly after enrolling and making on time payments in the debt management plan.
When you complete the debt management plan, and if all other payments were kept current (like an existing mortgage, student loan, car loan), you should find that your credit score stayed in good shape. You will have eliminated most, if not all of your unsecured credit card debt. But you will have also eliminated year’s worth of unsecured credit history, and have no recent unsecured credit activity. Credit “recentness” is one of the better attributes of open and active revolving consumer credit cards being on your credit report. This is one of the simpler aspects of your credit report and credit scoring factors to rebuild. Losing the long credit history when accounts are closed can be rebuilt over time too.
More detailed information about how debt management plans work to help you manage your credit card debt can be found in my credit counseling article series. You can also call and speak with a certified counselor and learn more about how debt consolidation works by calling 888-317-8770.
Settling debt can hurt and help your credit report, and increase the FICO score
Settling your credit card debt for less than you owe requires you to have missed payments. This fact will give many readers pause if you are still making your payments on time. If you are reading this and are already 90 or more days late, and cannot afford a debt consolidation plan with a credit counseling service, you may now realize that your options for debt relief could be limited to bankruptcy or settling debts.
For those readers who have not missed credit card payments yet, but know that you will soon fall behind, missing payments is how you set yourself up to settle later. Just know that this is going to:
- Cause your credit score to fall significantly
- Stain your credit report with late pays, potential charge offs, and can lead to later debt collection entries for 7 years.
How debt settlement impacts your credit report and credit score will vary widely from one person’s situation to the next. I have seen credit bounce back quickly with many files that are similar to this college professor I worked with who shared her story with the Detroit Free Press.
Since another major portion of your credit score is factored on repayment history, your credit report and score is going to take a beating. The duration of the credit pain will be different for each person. But once you achieve zero balance reporting, your credit score can begin to improve. How long it will take to improve will depend on several factors.
5 ways your credit bounces back quicker from settling
- How long it takes to settle your debts? Settling a credit card debt directly with your bank before the account goes 180 days without payment is ideal.
- Did your account get sold to a debt buyer who is now reporting a collection entry on your credit report? This means your original lender reports your debt as a charge off, and the debt collector reports a new entry on top of that.
- What accounts were current during the settlement process? Those who settle credit card debts while keeping current with their payments on a mortgage, car loan, and student loans, tend to see their credit bounce back quicker.
- Did you have much credit depth before settling debts? Those with paid off home loans, auto leases and loans, paid off credit cards etc., tend to recover faster than someone whose only accounts in their credit profile were the credit cards that got settled.
- Were you able to take smart steps to improve your credit along the way? There are indeed ways to cherry pick accounts you settle, or plan your settlement strategy in order to improve your access to new credit products sooner.
In general, when taking into consideration two decades of hands on experiences of working with people to resolve debts by settling balances for less, I see people’s credit score, and access to new credit products, recover in 12 to 18 months. This would be a year and a half after the last account gets settled, and the credit reports are updated to reflect there is no longer any balance owed. By recover, I mean you are in decent credit shape again in order to qualify for home loans, auto leases and loans, and even new credit cards.
I have worked with people who have gotten approved using FHA underwriting on a home loan within a few months of finishing their settlement plan. Who are also able to get funding for student loans, and qualify for new auto financing, after completing settlements. Those who fit many of the 5 bullet items above can reach some credit goals much earlier than would have been the case had they filed chapter 7 bankruptcy, or enrolled with a credit counseling agency.
A key factor for bouncing back from settling debts and accessing new credit comes from a healthier debt to income ratio. Your finances now reflect that you can take on new debt and successfully make payments with your income.
Watch this short video from my Debtbytes channel about what settling debt means to your credit rating and access to new credit products:
How chapter 7 bankruptcy hurts your credit.
Chapter 7 bankruptcy stays on the public record section of your credit report for 10 years. That is the longest shelf life of all debt relief options! But the long negative credit reporting and the initial Olympic ski slope credit score drop is misleading. The perception of chapter 7 bankruptcy is that your credit report and credit score is being sentenced to prison for 10 years. Not true!
There are a host of reasons to look at all of your options to stay out of bankruptcy. Your ability to access new credit soon after your debts are discharged in a chapter 7 is not as legitimate a concern as many would have you believe. If you are struggling under a heavy debt load, and can qualify for chapter 7, it should be viewed as an option of first resort, not the one that should be avoided at all cost. In fact, chapter 7 bankruptcy viewed from a pure cost basis, will beat the cost of debt settlement, and credit counseling, for the vast majority of people.
People discharging debts through chapter 7 bankruptcy find credit card offers in their mail within weeks or months after the bankruptcy is finalized. The credit card offers do not come with high limits, and are going to have higher interest rates attached, but they are there.
Chances are you would not see offers for new credit if you continued struggling your way through your debts, because you are carrying too much of it. Chapter 7 bankruptcy would wipe out your unsecured credit card bills and other debts. For many this will mean a healthier debt to income ratio than you have had for years! There is also the fact that creditors know you cannot file chapter 7 bankruptcy again for 8 years, and consider that an acceptable risk.
Taking on new credit card debts after filing for bankruptcy relief in today’s economy, and with the lower credit limits that will be available, will make it harder to get in debt over your capacity to pay it back.
Credit and loan standards after filing chapter 7 bankruptcy.
- FHA (Federal Housing Authority) underwriting for new home loans will put qualifying for a new mortgage or home purchase out of reach for a minimum of two years (some exceptions). This means you rent, or stay put for a short time. This certainly blows the 10 year credit report and credit score concern out of the water!
- Underwriting for student loans you want to cosign for will be out of reach for a few years – not 10.
- You may be able to get decent auto financing within 12 months after filing for chapter 7 bankruptcy. See how that’s measured in months, and not years?
Filing chapter 7 bankruptcy, and getting a fresh start with your personal finances, is not the end of the road it is made out to be. It can actually be a necessary beginning to a new credit life. You simply need to know how lenders and underwriters view the bankruptcy, and be proactive and smart with rebuilding credit. The 10 year credit report stain is more like a coffee cup smudge within two to three years.
How Chapter 13 Bankruptcy hits your credit score and credit report is another thing entirely.
Chapter 13 is the worst of all debt relief solutions when it comes to credit impacts. The court trustee is going to be overseeing virtually every aspect of your financial life during your repayment plan. Chapter 13 bankruptcy plans go for either 3, or 5 years. The majority are 5 year plans.
Chapter 13 will be on your credit report for 7 years.
The bankruptcy trustee will have to approve and monitor your household budget and expenses for the life of the chapter 13 repayment plan. If you wanted to take on any new credit, no matter what it is for (virtually), you have to get the trustees permission, and that is not very common.
If there is any debt relief solution that is like a jail sentence to your credit, this would be it. There is really no flexibility to a chapter 13 bankruptcy. Historically about 70% of chapter 13 filers cannot, or choose not, to stick it out and complete the repayment.
There are very real benefits to a chapter 13 bankruptcy. You do get the courts protection from creditors who could otherwise use aggressive collection strategies, like suing to collect. You get to keep personal items that may have not been permitted in a chapter 7. Your retirement accounts are nearly always protected. Chapter 13 can even make your home more affordable by helping to cram down a second mortgage if you are underwater.
If you cannot muster up the cash to settle with creditors, or hold too much equity in your home, or have other assets to protect, chapter 13 will make sense. Just not from a future credit planning perspective.
Here is a brief video about bankruptcy and how it can impact your credit:
Your credit reports and scores are a utility for consumption.
Credit reports and credit scores have a utility function for both you and lenders. Banks use your credit rating to price risk. You use your credit score to get better pricing when accessing credit for consumption. If you have a good score and healthy looking credit report, and are in the market for a loan, you are using your credit history and credit rating utility function. The better your credit rating, the lower the costs you will pay for making purchases using credit. Long term this will mean a savings of tens, if not hundreds of thousands of dollars.
Just think about what a percentage point or two on an interest rate tied to a 30 year fixed mortgage can mean to you in savings over the life of the loan!
What if you are not in the market for new loans, or maybe would like to be, but have more debt than you can manage?
I mentioned above that lending in the national economy has gotten tighter. Lending markets have thawed a bit since the credit freeze hit the U.S. several years ago, but now we are dealing with COVID-19 fall out. Even when the credit markets do fully break out, lending standards like those from 2005 or 2019 may not come back quickly. Applying for a credit card on line and getting a 25k credit limit, with thin employment and credit history, is probably gone for good.
Another example of the new normal are the increasing changes to credit underwriting standards for home loans that will impact most people. The CFPB’s new qualified mortgage rules will now impact your ability to get approved for a new home loan, or refinance an existing loan. I expect there to be student loan underwriting changes in the coming years as well. What does this mean to you?
Your credit report may not have a single blemish. Your credit score may be over 700. But if you are carrying too high a percentage of monthly debt payments compared to your monthly income, your credit rating has lost its utility function. You cannot effectively use that excellent rating without first implementing a strategy to pay off debts and bring your DTI in line with the lending standards being used in the credit market you are interested in.
If you are on this web site and reading through the debt relief program, it likely means you are in an emergency situation with your debt, or you recognize you soon will be. The three options for debt resolution outlined above may be what you have to consider in order to put yourself back on track financially.
Putting aside the hyper messaging in society about the importance of your credit rating; What do you need your credit rating for right now, or over the course of the next 24 months?
If you have a debt problem, your credit rating has lost some or all of its utility function already. The utility function can be returned once the debts you are dealing with have been resolved, or paid down to a point where you’re credit utility returns.
Conclusion:
Credit counseling services, debt settlement programs, and bankruptcy are the 3 main debt intervention options. Each one of them affects your credit score and credit report in different ways. Even slugging it out month to month to pay your bills on time – where your too high debt to income is going to prevent access to new credit – amounts to much the same as the debt relief solutions outlined above.
What may surprise you is that all of these methods for resolving debt track fairly closely with the other when it comes to being able to access new credit products.
Hopefully you are now better prepared to understand that when you are struggling with debts you can no longer afford, but are more concerned with your credit score, your attention is on the wrong thing. Focus on solving your personal debt and budget crisis first. Credit will be available again, and much quicker than you may have thought.
Do not let others sell you on the importance of maintaining credit when you cannot maintain payments on the debt you have. Especially when your debt to income means you are not going to be getting approved for credit – even with a high credit score.
Focus on the debt relief solution that is in line with your current financial ability, but with an eye on your future credit goals and needs in the next two to three years. A good process of elimination is to see if you can pay your debts back using a credit counseling agency and the debt management plan approach. Talking with a credit counselor in order to get an exact quote of how low your monthly credit card payments can be is free. You can also click on the settlement estimate request below; fill that out; and get an email with an estimate of what settlement will look like for you.
If a credit counseling service cannot get your payments to a place where you can afford your credit cards (medical bills etc.), and contrary to the desire of most to avoid bankruptcy, I would next suggest speaking to a bankruptcy attorney about chapter 7 debt discharge. If you cannot qualify for chapter 7 bankruptcy, or learn something about it that would cause you to cross it off the short list of workable debt relief options, then get started reviewing my debt settlement series.
If you have any questions about your specific debt issues, and how solving a debt problem relates to your credit report, credit score, or near term credit goals, post in the comments below for feedback.
- Kathleen O:
16 Apr 2014 I have, utilizing all your videos and advise, settled on two b of a cards for roughly 30% of the amount. I got the pre offer in writing and will be making a one time payment shortly, then I know I will get a 1099, the credit bureau will be notified that the accunt was settled but not paid as agreed- is there anything I could have done about that, or is that normal for a settlement? My next question is, I have the money to pay off my three other accounts, with other revolving charge cards, should I do this in a lump sum, or over several payments to continue to show good history with them?, they are current. This is all very confusing but your website is great and you all are doing a wonderful service to the public, thank you so much for all your knowledge sharing, it was greatly appreciated. Kathy how do I get the answer to my question, I have written several times, my phone number is xxxxxxxx or email me xxxxxxx [edited to remove phone and email] - Michael Bovee:
16 Apr 2014 Kathleen - The way your settled credit card with BofA will show on your credit reports is normal. You can expect that kind of reporting with any other settlements you do with an original creditor. There is nothing else you could have tried to do here. With the other credit cards you want to pay off, how long have you had each? I am not sure why your questions are not coming through. The Q & A feature has been glitchy on and off. The comment system much less so. Post to the comments to be certain you are getting through. - Jodi:
11 May 2014 Michael, Thank you so much for sharing your knowledge. I read your posts to other consumers for 2 hours last night and read as much as i could on your site. I have 2 issues and one is a whopper. First i was in FL for 12 yrs moved to TN in 11/13. I have old credit card debt 2009 /2010. Suddenly for a credit card from back then Midland credit just destroyed my score again with this old debt by reporting it again this March! I haven't touched paying it since then. I was almost at 600 with my score in February 2014 and thought that was good now its 560. Its also showing on credit karma the same accts over and over again being reported by debt collectors. . Can they keep doing this? I am moving back to FL and I'm afraid i wont be able to even rent because no one will rent to me with this score. I haven't missed a payment on anything since 2009/2010 but i could never repay any of that old debt. I got a car loan last year and i have a secured credit card with a 200.00 limit. The whopper: old private school loan trying to sue me i found out. It was from 2006. It changed hands so many times i don't know if I ever paid on it or if i did it hasn't been since 2009 or earlier. How can i be sure of all this? I didnt even know they were trying to serve me until an old friend alerted me just recently that someone showed at her house looking for me last summer. Well since then I checked and its been open case since 2011! Can they do that? I think the SOL may be up but how do find out for sure? I am now in TN but going back to FL. Can i still be served for this after all this time? It shows in civil courts they last returned summons not served in November 2013 but the case is still in open status. I moved around a lot and stopped forwarding my address due to all the debt collectors. No clue anyone was trying to serve me. Please help. I cannot afford a lawyer. I make just enough they wont give me a free one and not enough to afford one. Plus i have 40 k in federal student loans i just started paying back. Any advice where to start i would appreciate. I am tired of living like this. Its so stressful. - Jodi:
12 May 2014 Thanks for getting back with me so quickly Michael. I pulled my credit last night after posting and the last payment I made on the old private school loan was 1/2009. I cannot afford to pay it back. Every penny I make goes for my federal loans and car payment and insurance for auto and health and I'm a single parent. I cannot afford another payment. I live very meager as it is. I drove a 2002 vehicle til it broke down last year before buying a used vehicle with payments again that are killing me. I have no family to borrow money. It says 10 k with the credit cards but that's inflated to double due to the collection agencies. The SOL is past in FL for all of it. As far as Midland slamming my credit again it's because I moved to TN temporarily and the SOL is 6 yrs here so the slammed my credit again in March and are trying to get me again. How can they do this? My HSBC accts only 2 legit ones are on there at least 5 times showing balances from several creditors and none of the balances are the original balance. It is saying CO or charged off from HSBC - Michael Bovee:
12 May 2014 Jodi - Thanks for the additional details. Is the HSBC account the one Midland is showing on your credit report for? Who are the other debt collectors showing the HSBC account, and what are the balances showing as owed for each of them? - Jodi:
12 May 2014 Michael, I also found a Fingerhut on my cr that Midland is after and I never had a Fingerhut acct and also a 100.00 Verizon that isn't mine that Midland has too. I looked up Midlands practices and several other people reported these same accts from Midland that weren't theirs. Some of my accts are legit but past the SOL in FL where I was when these accts originated and then these others are not mine. This Midland Credit is known for these types of practices from what I read. How do I fight these accts that aren't mine? In 2012 I had a Target acct that was on there too they were trying to collect that was opened in 2010 that was on there and I didn't even live in the area it was showing opened for nor did I open an acct in 2010! I disputed it because of course it was Midland trying to collect on it plus an old Target acct I had and it's still on my credit report but says disputed on it. How come it was never removed? I had no idea how dirty this company is. I had the one acct but not the one opened in 2010. It's not fair that if you've had problems you get preyed upon from companies such as this. Now they are doing it to me again and I don't see how they have a right to hit my credit again for credit where SOL already is past? What recourse do I have? Please can you offer any other advice? I cannot afford an attorney. When I go back to FL I am temporarily moving with friends with my child. I am afraid to change my address or give out theirs or change my drivers license because all that will happen is getting chased down again by creditors. I understand that I will always owe the debt but I am so close to this falling off my credit report. It's all from 2008 and 2009. Now that Midland has destroyed my credit once again for credit from 2008 and 2009 and I go back to FL in 2 weeks can I get it taken off by disputing the SOL has passed or will it fall off with the original date of the debt? Plus I never received a letter before they destroyed my credit score again in 3/2014. The letter for some type of settlement came just a week ago and was very vague. I filed bankruptcy in 2004 and that is off my credit this year. I would hate to file again. Thanks again for any advice you can offer. - Michael Bovee:
12 May 2014 Jodi - All of these collection accounts should fall off at the same time as the original creditors. You will have to be watchful at the required time (7 to 7.5 years from date you first missed payments), and make sure all of them drop off. If they do not, it would mean those accounts were reaged inappropriately. That is when you dispute them. You can certainly dispute the accounts you know are not yours and that you never opened. I would encourage you to file a police report regarding identity theft first. If you can swing the student debts (that are not dischargeable in a chapter 7 bankruptcy most of the time anyway), and you have not been sued on the other debts, and are moving back to a state that affords the shorter SOL, I do not see the tangible benefits to filing bankruptcy again. You can get your credit reports back to healthy, and improve your credit scores quicker without it. - Jodi:
12 May 2014 Ok Michael I only printed one of my cr reports because it is 138 pages long. This is from the Equifax and this one didn't even show my private school loan. Has the SOL passed on that for 1/09 being last payment paid? Here is HSBC info. There are 2 accts for HSBC. First 4 numbers of acct 5800 portfolio recovery Type: open acct delinquency reported: 12/2009 Balance 2217.00 HSBC: First 4 no: acct 5489. Last pd 9/2008 bal 0 Charge off amt 1217.00 Then midland credit LLC acct 853111xxx for acct 11/2008 doesn't say for what acct ? Original bak of 995.00 now 1735.00. No name of original acct. Michael I can't even figure this out. Midland has there name on so many of these and there are other names too as you can see. I'm not even sure there are so many things on here. It's so overwhelming how it snowballs. There is a paralegal I put a call out to already who deals with bankruptcy and I hope she can take a look at this to help me. - Michael Bovee:
12 May 2014 Jodi - The first thing I would suggest is talking over your situation with an experienced bankruptcy attorney. You may not be able to discharge the student debt, but if you can afford a manageable payment there, while shedding all the other old bills, you can stop looking over your shoulder like you have been. Otherwise, having not served you, and were that in Florida, they may still have time under Florida SOL for a written contract. If not filing BK, you may still want to lay low until you know the SOL is passed. The credit card collections that Midland is reporting on your credit reports has a 4 year SOL in Florida. If that is already expired, you will be in a good position to negotiate an affordable settlement with them. But do not expect the collection to be removed from your credit reports. It will be updated to show as a zero balance due, and your credit scores can recover from there. You mentioned that you are seeing multiple reports on your credit for the same accounts. Can you be more specific with what you are seeing? Some of what you describe is normal, but only if previous creditors and collectors for a duplicate collection account show zero balances. While a single account may show up on your credit reports more than one time, it should only show as a balance owed today by one collector. - Michael Bovee:
13 May 2014 Hopefully you can sit down with someone and review the credit reports. Once you make sense of it all, you can address inaccuracies one by one. The dates you gave for the private student loans in collections appearing on your credit reports would mean they are a couple months passed the SOL for written agreements in Florida. - Jodi:
13 May 2014 Thank you Michael for your attentive responses. I will sit down with someone and go over my credit reports to better understand them. The printed version appeared more challenging to read then the online version! Thanks for helping so many people including myself. - Mara:
06 Jul 2014 Hi Michael Bovee, I live in CA. I need your feedback as to what action to take with Citi. I have credit card debt with Citi for 17k. In Dec 2013 I filed an unemployment claim with Citi Payment Protector Insurance (or similar name), provided by Citi cr card. I also notified Citi c.card that I was waiting for Payment P to cover the monthly payment due to my job loss. By end of April, Payment P declined my claim. My credit report showed 60 days past due by this time and news spread to B of A who reduced my credit limit quickly. My last payment to Citi was in Jan. 2014. And the last time I used the c. card was 2011. I am 130 days past due. In April, Citi c card asked me to cancel Payment P coverage, since they were not paying the monthly installment, and asked me to contact Citi c. card after the May closing cycle, once Payment P showed cancelled in my statement, to discuss payment options with Citi c.card. In April, Citi c.card suggested a 1% monthly payment. Citi c.card called me in May after the closing of the cycle, and I attempted to make a settlement for the first time. Citi wanted 40% and I only had 28% or so. They suggested I wait till the following closing cycle in June to discuss payment again. In June the Citi Recovery Dept. called me and I offered a higher settlement but it came $700 shorter than the amount their "computer" figured. They way Citi did this was: Recovery asked my dollar offer, and only after I volunteered, Citi searched in their computer for a counteroffer. They wanted 40%, and now the amount was larger due a late fee. I am 130 days late. It is July and I got another call from Citi Recovery (I normally use their calls to me to offer to settle) just one day after my recent attempt that came $700 short. This time the "settler" told me that they were not going to settle, that settlement was off the table. He asked a payment of $200 something right then. I asked what was the $200 something going to change and he said it would buy me more time. (I find this strange since one payment will not bring the account current, and the 180 days are running) He said his call in early July was probably the last call I was going to receive before my account was referred to a collection lawyer, who would sue me. He asked me if I could foresee any changes in my situation in the following months, and I said no. He suggested that I went to credit counseling and that I considered selling any assets I may have. I am currently paying my other 3 credit cards with balances of 15k 9k and 2k and 1,5k with money that I borrowed while I get back to work. I intend to settle the others as well, but cannot settle all at once because I do not have the funds, and even if I did, the 1099-c I will get for each forgiven debt would bankrupt me from here to April next year. I have two checking accts not with Citi. Balances are low. Michael, my questions are: 1. How do I explain this to Citi, who obviously is growing resentful about my zip code (it is a mail service, not my actual home address, and I had it for 7 years) and about the fact that I am paying all other cards timely. 2. How do I explain that I am unemployed and that credit counseling will not help because I have no steady income and cannot commit. 3. I thought it would be easier to negotiate closer to the 180 day... 4. Should I stop paying my other credit cards due in 15 days? 5. How long before the non payment shows in my credit report for Citi to see? Is it worth not paying my other cards now that the 180th day is closer? Does Citi hope to fare better than 40% of the debt by referring me to a collections atty? My credit with Citi dates to 2002. Thanks for your reply. - Michael Bovee:
07 Jul 2014 Mara - Before offering feedback and answers to your questions (thank you for being through and organized with your comment), I want to back track to the payment protection plan. There have been large settlements for marketing and representations surrounding many banks payment protection plans. I do not know if the Citi Safeguard, or any equivalent has been targeted for false, deceptive, or misleading claims, but this angle is what I would pursue first. What was it exactly that you were told as the reason why the protection plan would not kick in? - Mara:
09 Jul 2014 Michael Bovee, The Citi protection plan required full time employment for a minimum of 90 days. After layoff, a 30 day waiting period of TOTAL unemployment was required prior to filing a claim. I filed a claim 49 days after my last day of full time employment. I made my Citi card payment due during those 30 days. I did work about 12 hours total during the waiting period. The protection plan declined my claim 60 days after I filed the claim. And almost 4 months after my last day of full time employment. Their form letter dated April stated that I did not meet the requirements. I was hoping that Payment Safeguard would pay my Citicard starting Apr considering that my 30 days would start running after the LAST day of my part time unemployment ended in Feb. No way. The supervisor at Paym. Safeguard suggested I plea with the Legal Dept . I never did. I, instead, cancelled Payment Safeguard per Citi cr card's. Cancelling the Payment Safeguard was a Citicard requirement before making a settlement offer. My settlement offer was short and rejected on 7/3. I have not yet called Citi. again to offer the 40% they want. Awaiting your reply. Thanks Michael. - Michael Bovee:
09 Jul 2014 Because of the recent large bank settlements that have resulted from regulatory investigations into payment protection plans by the CFPB, I would think about filing a complaint about the matter with the CFPB. It may lead to a better outcome, but it may not. If settling the debt with Citibank is the goal, and in answer to your questions in your original comment: 1. If Citibank, or a collector for them, raises the issue that they can see on your credit reports that you are making on time payments to your other credit cards, you are going to want to be prepared with a credible answer. Often enough, when accounts are being kept current in situations where someone is running out of money before they run out of month, it's because the balances are small, and the payments still affordable. There are also scenarios where one can say that those payments are being kept current via a family member that is helping out, or by the family member who is an authorized user on the account, etc. 2. You explained being unemployed and not eligible for a credit counseling program well in your sentence. Just be prepared to repeat yourself in this regard. 3. It does not necessarily get easier to negotiate with creditors the closer you get to charge off. It just gets different. 4. I cannot tell you to stop paying your creditors. But doing so will cause you to appear more like someone in hardship. And had I been working your file from early stages of delinquency, I may have looked at your budget and settlement strategy and identified your other larger balance accounts as ones that should be handled similarly. 5. Late pays will typically show after 30 days of non payment (or in between 30 and 60 days of missing your billing due date). I cannot say whether it is worth it to miss payments to other creditors at this juncture. You may have missed that opportunity, but you may not have. If you miss a payment and it is reported on your credit as 30 days late, you can catch back up with those creditors after your agreement is in place with Citibank. As far as being a little short to accept a higher settlement offer, Citi can settle for less and offer as many as 94 day payment terms. It is better to do lump sum, but in a pinch, see what can be structured over a couple months. If settling after charge off, the 94 days is not the concern it is prior. I do not know where you are at when it comes to your asset and liability calculations, but walk through some of the exercise I outline in this article about forgiven debt being treated as taxable income. It may be helpful information for you come tax time. Citi's goal is to collect as much from you as possible, yours is to save as much as you can. If they send the account out to an attorney debt collector, you can settle with them too, so continue to be prepared with cash availability. - Mara:
09 Jul 2014 Michael Bovee, Thanks for answering every one of my questions. I got a call for Citi. I settled for 40% of the debt. One of the points that worked in my favor, apparently, was that I had a Payment Safeguard plan in place, whom, despite my proofs of unemployment, chose to not cover my payment. As I mentioned in my prior post, I worked part time during the required waiting period of total unemployment for 30 days and was disqualified for benefits. I must add a vital piece of information to the readers: When attempting to settle the account, you will be asked the source of your settling funds. If you say that you got a private party loan, that will account for part, then Citi will ask where is the balance coming from. Once you have your story laid out and think that all is said, the settler will ask: do you have any 401K retirement funds you can withdraw to pay? I said I did. How much do you have there? I said 5K. I added, foreseeing the following question, that the amount in my 401K I used as a collateral to get a loan for $5k from a private party. I added that I could not withdraw the funds due to the tax consequences of withdrawing funds this year, added to the 1099-c I would receive from Citi. After I answered all the questions, the settler consulted with her system and my offer was a couple cents short. I agreed to pay them. He asked me where where the cents coming from. Amazing! He said the settlement letter is mailed to me today and I must make payment prior to the next closing date, which is the 180th day, or they will apply the funds (that I will authorize them to withdraw from my checking account after I received the singed settlement letter) towards my balance and sue for the balance. I wanted to mail a cashier's check but she insisted on a bank withdrawal, which I agreed to authorize after I get the settlement letter. Is there a settlement letter sample that you can direct us to? Thanks for the great service you are providing to us, Michael. And for the link to figure tax liability on the forgiven debt! I would not have done this without your advice. - Michael Bovee:
09 Jul 2014 Congrats Mara! Check out this report on debt settlement agreements. If you have any questions about the letter you get from Citibank, post them in the comments on that page. The letter should be fairly standard. - Janet:
12 Jul 2014 HI I JUST JOIN ACCC I OWE LIKE 8500 IN CREDIT CARD IM IN DMP I WILL LIKE TO KNOW IF I SHOULD GO THIS ROUTE OR IF I SHOULD DO THE DEBT SETTLEMENT PROGRAM WHERE THEY PUT THE MONEY INTO A SAVING ACCOUNT UNTIL THEY REACH A SETTLEMENT ..WHICH ONE IS BETTER. IM LEASING A CAR RIGHT NOW WILL IT EFFECT MY CREDIT OR CREDIT SCORE IM SO CONFUSE I WANT THE BEST ONE THAT WILL WORK FOR ME. - Michael Bovee:
13 Jul 2014 What is your monthly payment in the DMP with American Consumer Credit Counseling? Is that amount something you are highly confident you can afford to pay on time, all the time, for the duration of the payment plan? When is your car lease up? Do you have any inclination of financing the purchase of the car you are driving now? Do you intend to lease another when this one expires? Are all other debts being paid on time, or are there late payments and collections affecting your credit right now? - Gina:
30 Jul 2014 hi I need help! I have $52000 in credit card debt. a loan with discover for $25000 at 8% for 5 years I only have three years left $534. My home equity is $38000 but if I can get rid of my crefit card debt I can concentrate on paying that off in 10yrs. I only have 12yrsc left on my mortgage. my husband and I credit score are both 719 but I don't care about my credit score anymore I just want my credit cards paid offI have never missed a payment or been late but I'm getting nervous I work two jobs just to pay my credit card. I do not have any auto loans. And probably can go another 3 yrs before that issue arises. what should I do to help I'm crying. Thankyou. ... eagerly awaiting your response. ... - Michael Bovee:
31 Jul 2014 Gina - Please list the balances on each credit card you have and the interest rates on each too. I can offer more applicable feedback with that information, and draw some comparisons of your options. - gina:
31 Jul 2014 Ty for responding so quickly... on my way to my first job get back to you this afternoon! - Kyle Brown:
09 Aug 2014 Mr. Bovee, I have $48,000 in credit card debt and make minimum payments on time. I am tired of getting no where in reducing the total balances. I have one car loan, student loan and mortgage that are all paid on time. I currently have an offer from debt settlement for a 3 year plan at $876 a month, saving $450 a month.Credit score is 671. Would this be a mistake? - Michael Bovee:
11 Aug 2014 What are the interest rates and balances owed on the credit cards? What, if any, financing and credit goals do you have for the next 3 to 4 years? - Kyle Brown:
13 Aug 2014 $17,000 @14% $7,500 @ 21% $8,000 @13% $7,300@ 14% $3,000@13 Im would be great to be free of unsecured debt in 4 years. Im currently paying $1300 a month towards the cards. Also, not concerned about credit score. - Michael Bovee:
13 Aug 2014 If you can afford 1k a month, and do not want to subject your credit reports to the damage that comes with debt settlement or bankruptcy, I would look at credit counseling first. It will allow you to consolidate all of those payments, and reduce your interest rates. I used a national average of payment reduction to get to 1k a month. Your monthly payment consolidating through a credit counselor will vary between 1.7 and 2.5 percent of your combined balances. These programs run an average of 50 or so months. Call and talk with a credit counselor at 800-939-8357, and press option 1 in order to get a down to the penny quote. If you are looking to save money on the balances owed, debt settlement and bankruptcy would be the next alternatives to look at. Let me know and I can break down the settlement percentages and estimate what that will take at saving up 1k a month. I will need you to post who those balances are with, as each may settle for something different. - MM:
13 Aug 2014 Hi Michael, I just came to a settlement agreement for a charged off account with a collection agency on behalf of Bank of America (with your wonderful advice!), and I'm scheduled to pay them next week. It is the only debt I have, but I'd had it for 2 years. I understand that debt settlement can hurt your credit score. Currently, I only have one secured credit card with a credit limit of $300, which is on the low side. I've only had this card for 6 months. I got it because I had no credit at all otherwise. I believe that I now know how to use credit responsibly and would never get myself into this situation again. Currently, my credit score is not great, but not horrible. It is 645 on Transunion, 670 on Equifax, and 678 on Experian. Would it be stupid of me to try to apply for new credit cards before my score is lowered by this debt settlement, or do you advise I just allow my credit score to drop from the settlement and then allow it to slowly rise again? I'm worried I won't qualify for new cards in a long time and I'm hoping that having them and using them responsibly would make my credit score go up faster. Thank you again for your time. - MM:
13 Aug 2014 I would apply for a new card AFTER I've paid the settlement, of course. - Michael Bovee:
14 Aug 2014 I would wait 3 to 6 months afterward. And you might want to consider using a credit matching tool from a place like credit.com. Congratulations with putting the bad debt behind you! - Joa:
18 Sep 2014 Bovee, Here is my list: 6000.00 21000.00 20500.00 3250.00 13900.00 23000.00 Medical bill (surgery) Most of the debt is at zero percent offers and I keep transferring the balances around to keep it that way. I want be be out of debt in less than two years under a debt settlement program because this is the one that will probably let me do it in that short period of time. Is this possible? It was my understanding that if a collecting agency took over the debt this meant I no longer had to pay taxes on the savings. Now I find out that it is best to negotiate before that happens. What would be more important? Would I have to pay taxes on the settlement? Can they sue me? Could they win a law sue? - Michael Bovee:
18 Sep 2014 When I was underwriting client files daily, I did not accept a customer who could not complete their settlements inside of 24 months (there were a couple of rare exceptions for people living in pro consumer states with no assets). 2 years will work for settlement, even if you are sued. Questions: Assume you are going to need 40% of today's balances to settle all but the medical debt. That is roughly 26k. How soon will you be able to raise that much? Can you get that together inside of 6 months? What about 12 months? If you are saving up money monthly, what amount are you able to set aside consistently? What state do you live in? Settlements with debt collection outfits do result in tax on forgiven debt. Bankruptcy is the only out on that one. Not everyone that settles ends up owing money to the IRS. See this report for more: https://consumerrecoverynetwork.com/debt-forgiveness-taxes-settled-credit-card/. Yes, you can be sued. The quicker you get the settlements done, and correctly prioritize which ones to do first, you mitigate those risks. Depending on the answers you post to my questions, you may have very little risk of being sued. - April:
09 Oct 2014 20,000 - Michael Bovee:
09 Oct 2014 April - I need a little more than that to respond to with feedback. What's with the 20k? How does it relate to any concerns about your credit reports and credit scores? - Ivelisse Maldonado:
22 Oct 2014 Hello I have been on disability since January 2014 to present (disability 2011-2012-2013 for several months) I'm not sure if I will be able to work again. My debt total on credit cards/credt lines is $44,100k. Parent loan $60k, which i deferred it (I have not made any payments yet). Also mortgage $355k. I am current on all the payments, but I just paid late on two of them. What option do I have if I continue to make payments? What can I do if I am declared permantly disabled? - Michael Bovee:
22 Oct 2014 How much equity do you have in your home, and what state are you in? How many people live at your home, and how many dependents? What are the interest rates you are paying on the credit cards? Why did you pay late on two of the accounts? Are you experiencing a monthly cash flow shortage? If you had no credit card and unsecured loan payments to make monthly, would you be able to afford the mortgage and parental loan for your student? Would there be room in your monthly budget to spare after those payments are made, and all of your other necessities are met, and if so, how much room? Do you have any credit or financing goals in the next 2 years? - IM:
22 Oct 2014 There is no equity or very little. I live in NJ and have no dependents. The interest rates are between 8-18%. I'm having trouble making all the payments when unexpected bills come in. I'm barely making it with my disability check If I return back to work I would be able to pay the mortgage and parent loan although I would still be running tight. But if I cannot work anymore the only thing I can pay is mortgage. - Michael Bovee:
22 Oct 2014 The mortgage and the student debt are the priority (if you want to keep the home, and because student debt is often not dis-chargeable in bankruptcy). It sounds like the credit cards and lines of credit are unaffordable no matter how this shakes out, and you are only covering them now because you are not making payments on the student loans. It could make sense to preserve all cash flow right now, until you are in a position to make some decisions about whether, or when to file chapter 7 bankruptcy. How long until you hear back about permanent disability? - IM:
22 Oct 2014 I have not applied yet but it takes about three months. Im still hoping I can return to work but does not look good. It seems that bankruptcy will be the only solution which I was hoping it would not be. I will need to make a decision within the next couple of weeks. As you said I need to start preserving money. Is there anything I can do in discharging the parent loan? As the only payment I can make is towards the mortgage if I get permantly disabled. - IM:
22 Oct 2014 I have not applied yet but it should take about three months, hoping I can still return to work. Seems like bankruptcy is the only solution. It would make much sense to start preserving cash as you stated. Is there anyway I can discharge the parent loan if I am unable to work, as I will only be able to pay the mortgage. - Michael Bovee:
22 Oct 2014 Based on what you have shared so far, it will be the permanent disability that could open up options in a chapter 7 bankruptcy for discharging that debt. As that would be optimal, I would talk about that with a bankruptcy attorney before progressing with your filing. You may learn that not paying those unsecured bills starting now, but waiting for the disability determination for filing, in the event you can look to include the student loans, is the right step to take. There are payment options for student loans if you are unable to include those loans in the bankruptcy. Check out www.studentloanborrowerassistance.org for more about those. I can see reason to be glad your best option is chapter 7. As you learn more about it, and the alternatives like hardship payment plans, credit counseling, or trying to settle credit card debt, that I cover on this site (which are really not workable for you when you factor in the student loan payments not being made today), I am sure you will come to terms with it. It is the lowest cost, provides the most certainty, and will be the quickest of the options you have (even if you wait out the many months to learn about permanent disability). - Im:
22 Oct 2014 Thank you for your advise. I will look into the link you provided - Dee:
27 Aug 2015 Michael, just wanted to personally thank you for taking the time to speak with me and give me the cold, hard truth regarding my $30,000.00 credit card debt. This article also reinforces not only your suggestion to go ahead and speak with a bankruptcy lawyer but you also laid out the reality of needing to have access to some types of assets to be able to do debt settlement and negotiate with these creditors. If the assets aren't there and you also don't have available cash flow because of trying to keep up with minimum payments, it is a no brainer at this point to more than likely declare bankruptcy. I want to let anyone know who is considering this, there is not shame in doing this. No one decides to wake up one day and get into credit card debt. Most people have circumstances that occurred in which they kept using their credit cards, never imagining it would lead to high debt. I look at bankruptcy as a new beginning for me. The bottom line is, no matter which route you go, your credit score will be affected. What one has to do is get that out of their head and focus on getting out of debt with the least resistance. The rest shall follow. Thanks again, Michael for your great insights and savvy expertise. It was much appreciated! - Jeff:
02 May 2016 I had to file a Chapter 13 in August 2009 due to over one million in medical bills. How long before that 13 is removed from my credit reports? It will be 7 years old in August 2016. Of course, it was discharged in August 2014 completely. I think once the 13 is off of our reports, it will significantly improved our already very good credit scores of around 750 now. - Michael Bovee:
02 May 2016 Chapter 13 stays on your credit for 7 years (chapter 7 for 10). You should be in the clear this August. - Jeff:
17 May 2016 Michael, I have asked several questions here previously. I have learned a great deal from you. My last question was how long does a Chapter 13 remain on one's credit report, you said 7 years which is great. My Transition report clearly says that my 13 and several other creditors fall off of my reports in July/August 2016, 7 years from my 8/31/2009 Chapter 13. I am assuming that will have a solid impact on my FICO/Credit scores. It's amazing how one bureau reports me as having a 787 FICO score now for one creditor and a 730 for another, when I know the FICO score is the "real" score that lenders use for credit/loan requests. I also know that some creditor's report to all, to some or to one bureau. I wonder what bureau is the most used and how do they get a FICO score? The other item that people should know is that if you ever have to file a bankruptcy, it will not only show up in "court records" on your credit report (reported by the court legally) but if you don't exempt a particular creditor, regardless of payment history, it will most likely (in my case) be shown as an "adverse account" on your report, which really is unfair but I guess that is a legal requirement on them to show it as adverse. I had a American Honda Finance loan for a motorcycle and it was paid even before the due date each and every month but it shows as an adverse account. So, if I had known that when the bankruptcy was filed, I would have exempted it from being reported to these paid as agreed lenders, What really bugs me is our mortgage; perfectly paid ever single month for 15 years but they were notified by the court and they list us as adverse as well! In fact, during the 5 year repayment term during the bankruptcy, they reported NO payments at all, which makes it even worse when you have paid perfectly during that time. Very frustrating. Here are my questions; Even though my creditors who listed my accounts as "adverse" are dropping off in 7 years or July/August 2016 (noted on each of my credit bureau reports), my Bank of America mortgage mortgage drops off in August 2019, which would make it 10 years. Why? That is killing me, considering all perfect payments. In fact, even though the bankruptcy was concluded in 2014, they still have my loan in the bankruptcy department vs. a normal department, which makes me feel like crap and uncomfortable, as if I am some kind of loser. Why is this? Why is it still in that department. Anything I can do to remove this item from my reports? They says it's a legal requirement to mark my account as a bankruptcy, although they also note it was discharged in 2014! Again, perfect payments from day one 15 years ago. I am sure that affects my FICO score. I had a loan for a car with Nissan that was noted as being included in the 13, although perfectly paid. Apparently, when I turned the car in via it's lease after 3 years, and it was inspected at that time at the dealership, they noted that my tires were worn but never said anything at the time of turn-in. It was way later that I found out when I called them to inquire why they would include this loan as adverse even though I paid it perfectly. I now know why (legal).The bureau's indicate it will be removed in July 2016. They are the only item on any of my reports that does NOT reflect the discharge in 2014. Should they? It just says Chapter 13 Bankruptcy on the reports. Sorry for long, protracted story, wanted to get it all out there so I know what to do. - Jeff:
17 May 2016 PS, if the reports say an item is falling off in July, 2016, 7 years from the 13 filing, can a creditor continue to list it or are they required to drop it off of my reports? Can they extend it past 7 years? I would think not under the law? Like I said, any of these creditors are noted on my reports that they will drop off in a few months, including my public record of bankruptcy in 2009. Thank you! - Michael Bovee:
18 May 2016 The credit bureau most used is often going to be different from one person to the next. One bureau may be much more popular in one region of the country than another. There are also different credit reports and scoring models used for different purposes. Auto finance companies want to digest credit reports a little differently than another lender, and mortgage companies want a tri-merge report that will score you differently. Bank of America, like other banks, has a different process for handling accounts in bankruptcy. There are regulations and requirements for them to follow, so this department is trained up on all of that. It does suck, but it is what it is until the BK comes off. The Nissan issue is the same as the one with BofA. You will want to establish new lines of credit as appropriate after this summer. - Michael Bovee:
18 May 2016 The creditors do not get to continue to report anything negative after the 7 years. You will soon be able to start rebuilding, and will be in good shape when all this drops off anyway. I did move your comments to this page that deals more with credit reporting. Readers on this page will get more from what you shared than on that other debt collector page. - Chase:
23 Jul 2016 I contacted a debt settlement company and they have said they can help cut my debt in half and negotiate with the creditors. My payments would go into a bank account and they would make payments on my behalf. That my credit report would be affected negatively but would never state or show that I settled with them for lower than what was owed. I owe $136,000 in debt. Make$139,000 a year, own a home with equity and pay on time. Is this something you would recommend doing for my situation so I can get out of debt and will my credit bounce back to normal within 3-4 years? - Michael Bovee:
25 Jul 2016 How a bank is going to show on your credit report is not something a debt settlement company is generally going to be able to control. If, for example, BofA shows you now owe them nothing because you paid less than the balance owed, it is all you need for your credit to improve (after all settlements are done), but it could indeed show you settled for less. It is a silly thing for settlement people to get hung up on explaining. Call me for a phone consult at 800-939-8357, ext 2, or submit the Talk to Michael form in the right column of this page and I will email you back to set up a time to talk on the phone. I will cover how settlement works in more detail so you can compare that with your other options better. - Lori:
11 Aug 2016 I am 49 years old I work full time making 68000 a year. I have a 160000 mortgage, 6000 car loan, 200000 student loan (in income based program and will be forgiven after 5 more years of Public Health Service.). I owe 15000 in taxes and am making monthly payments. I have proximate my 25000 in credit card debt and medical bills with minimum payments of approximately 1000 a month. All payments to all debt have been paid on time but I can't keep it up. Home, car, student loan, and taxes will not go away. I have to do something. Please advise debt relief program or chapter 7. I have read your article. I want the best way to eliminate debt to income ratio. Will not be using credit cards again but will eventually want to buy and sell home. Thank you - Michael Bovee:
13 Aug 2016 How soon are you looking to buy a home? How many people are in your household? Filing chapter 7 will affect your home goal for 2 to 3 years. But if it takes you that long to settle, the fact you fell behind and may still have unresolved collections on your credit reports will also hold you back from a new home loan. If you can raise roughly 12 thousand dollars - in order to settle - in less than 18 months, I would favor settling vs chapter 7. Partly because we are talking about the different of coming up with 12k and 2k (costs for filing bankruptcy will often be a little less than 2 thousand dollars), which means filing over the difference of 10 thousand dollars. That is not chump change my any stretch, but playing the bankruptcy card can only be done once every 8 years (chapter 7), and it is something many of us would want to avoid if we can, and if the dollar differential is not to stark. I can offer more feedback when you post your reply with answers to my questions. - Stephanie:
17 Aug 2016 Hello Michael, First of all, let me say that I stumbled on to your article yesterday as I was looking into possibly getting help with my debt through the National Relief Debt Settlement program, and I'm so glad I did! Your article was so educational but also reading about other people's debt situations and your advice provided me with the confidence to post my situation and see if you can suggest what would be the best smarted solution for me. So I'm a 38 year old married woman with 2 teens. I'm fully employed making $84k per year and my husband and I own a home for the last 6 years. Ever since we bought the house my husband and I have kept our accounts separate and we split the bills so my responsibility became the mortgage payment and my own personal expenses. Problem is my expenses really are anything the kids may need, or anything the house needs. Because of it I have accumulated a lot of credit card debt to the point I am embarrassed to share it with my husband. It's even more embarrassing because we both filed for bankruptcy a little over 13 years ago and we were so proud to have rebuild our credit, erase the bankruptcy from our credit reports and bought the house. Over the years, I have managed my debt by transferring from high interest cards to $0 interest ones, and in the last year I got two personal loans to help me pay it all of but was not able to do that and now I'm way over my head. Really don't know what to do and don't want to tell my husband. So far, I manage to pay my 3 credit cards, 2 personal loans, 1 student loan and my mortgage every month on time and have never missed a payment. Don't know how as I'm in the negative at the end of the month. Here's a snap shot of where I'm. Monthly Personal Income / Expenses Analysis Snapshot Pay Cycle INCOME 15th $1,875.79 30th 1,875.79 Total Monthly Income $3,751.58 1 Barclays US Airways MC Credit Limit $10,000.00 Current Balance $9,360.26 Utilization %93.60% Interest Rate 19.99% Monthly Paymt $250.73 2 Chase Slate Visa Credit Limit $19,000.00 Current Balance $13,638.36 Utilization % 71.78% Interest Rate 12.99% Monthly Paymt $200.00 3 Discover it Card CL $19,000.00 CB $16,812.17 Utilization 88.49% Int. Rate 25.99% Monthly Paymt $362.00 4 Prosper Debt Cons. Loan Current Balance $28,588.83 Int Rate 11.54% Fixed Monthly Paymnt $770.44 5 SoFi Debt Consolidation Loan Current Balanse $17,313.19 Variable Int Rate 10.00% Monthly Payment $351.81 Total Unsecure Debt $85,712.81 6 Navient (Department of Education Federal Loans) Student Loan Current Balance $10,633.69 Interest Rate 6.50% Monthly payment $319.57 7 Mortgage $2,180.68 Other (Inactive Credit) which I don't use but I keep open to help boost my debt to credit ratio. Various CL $4,000.00 CB $0.00 CL $2,700.00 CB $0.00 CL $2,600.00 CB $0.00 CL $5,700.00 CB $0.00 CL $13,500.00 CB $0.00 CL $3,000.00 CB $0.00 Total Available Credit: $79,500.00 Total Debt: $96,346.50 Total Monthly Expenses $4,435.23 Month-End Paycheck Balance -$683 Was so proud of my FICO score last October at 801 highest ever and now it has been steadily dropping and it's now at 708. I'm really desperate for help please Michael. I can't sleep at night thinking about all this debt. - Stephanie:
17 Aug 2016 I also forgot to mention, that my main concern with regards to my credit getting damage again is because this year I will most likely have to apply for more student loans but for my son who's in his last year of HS and in another four years again for my younger son who is now in 8th grade. I'm also concerned about tax implications I may have to face depending which debt vehicle I choose. Thanks again Michael. - Michael Bovee:
18 Aug 2016 I will often suggest looking at chapter 7 bankruptcy in your situation. It costs less and is faster than other debt solutions. You could help your oldest with college using monthly income for a couple years, and you would be on track to get parent plus loans before your youngest is ready to go to college. Bankruptcy is different now, compared to when you filed. There is now an income means test that is state specific. If you want to file chapter 7 you will need to be under that, and I suspect you aren't. You cannot continue the path you are on in the red each month. Have you looked at consolidating with a nonprofit? You can call my hotline and talk to a certified counselor for free and get a quote at 800-939-8357 ext 1. You may be able to get those payments reduced enough to continue to pay and not hurt your credit. If that quote is not workable, call back and hit ext 2 to ring my phone. I will go over how settling with your creditors is going to look. National Debt and many companies like them take an approach to settling that is set up to sell the program, but not inform you the most, or ensure you are set up for success. Unless you can get things to fit in with the nonprofit consolidation plan, you are going to have to sit down and go over all of this with your husband. - Michael Bovee:
18 Aug 2016 Check out this article about taxes owed on cancelled debt. How much, or even if you will pay, depends on each persons situation. - Stephanie:
18 Aug 2016 Michael, thank you so very much for your quick and thorough explanations regarding my situation. I will take your advice and will be calling your hotline to see if nonprofit can help. If not I will take you up on your offer and will love to chat with you directly. Again, thank you! - Katie:
02 Nov 2016 I am looking into a debt relief program and I don't want to make a mistake. I have a mortgage and a car payment and I currently make all of my credit card payments on time. However the bills are piling up and I'm starting to not be able to pay everything. Can you loose you home through a debt relief program? And are these debt relief programs helpful? Or even legitimate? - Michael Bovee:
03 Nov 2016 What is the name of the debt relief company you are talking about? There are tons of different ones that take different approaches. Some should be avoided. - Kate:
18 Nov 2016 I have over 20000 in credit card debt and I am considering going with freedom debt relief to settle it. I do not own any property and I still owe $14000+ on a car loan as well as over $50000+ in student loans. Is going with a debt relief program my best choice? - Michael Bovee:
21 Nov 2016 List the balances on the credit cards and the interest rates. I can make a side by side comparison of your options for you. Include what Freedom Debt Relief quoted you as your monthly payment into escrow. - ED PANZA:
21 Nov 2016 My wife has $40,000.00 in credit card debit. If she goes with debt consolidating will it effect her credit score? - Michael Bovee:
26 Nov 2016 Read the above article carefully. If the debt consolidation she is going for is through a nonprofit credit counseling agency there is little to no impact to the credit score. If debt settlement is what you are looking at as a form of consolidation, her credit score could drop dramatically until all of the accounts are settled. - Janelle Fields:
12 Dec 2016 Do you know if 'in charge debt solutions 'is a reputable company? They say they are non profit and A+ with better business. They want to charge me $55 a month for their services, do you think that is reasonable. Also the plan is for 53 months, is that reasonable? - Michael Bovee:
13 Dec 2016 A DMP is not allowed to exceed 60 months. Most credit counseling debt management plans run just under 60 months, so that 53 month quote is right in line. The fees charged for credit counseling can vary. Watch this link back. It is a recent video about DMP fees and the value you get. State law caps the fees In Charge Debt Solutions can accept. If you have 5 or more accounts you are enrolling, that 50-ish dollars is normal. - Larry S:
27 Dec 2016 Hello Michael and Happy New Year to you. Things appear to be moving along just as you have suggested. No surprise to me since this is what you do so very well. A major credit card company has contacted my daughter with a new settlement amount of $5100 on the new balance of $9160 they say is now owing. (I assume they continue to add interest and penalties) Previously they offered $7000 payoff for the $8800 owed. They sent a hard copy letter via snail mail that arrived on Saturday saying they needed to have payment by December 30th. We tried contacting them but the contact person is on vacation so we left word to give us a call. I plan to explain to the person working the account that my daughter doesn’t have any discretionary income and unless I can help her pay off a settlement amount I will just give her $1500 for an attorney to file bankruptcy. The only debt other than this credit card company is to her bank for a car loan. She continues to pay the car payment and the bank doesn’t seem to know she has a problem with the credit card company.. The attorney said she would be able to do what is necessary to keep the car and the loan with the bank. She added $300 for this to the original $1200 charge to do the bankruptcy. My daughters credit is already bad as you could imagine, but she has a good job that doesn’t seem like it is in jeopardy. Since I’m the one paying the bill for whatever the cost is for a settlement or bankruptcy I would obviously like it to be as small as possible. What would be the difference to her going forward if she filed versus settled? *Recent update since I wrote the above earlier today. The credit card company employee returned my call this evening and made an offer of $4200 to settle both accounts. She was very professional and sincerely seemed to want to help. She suggested that I contact one of the credit agencies like Xperion, etc and ask them to explain what the difference would be for my daughter if she made a settlement versus filing bankruptcy. My daughter and I both have read all of your articles and they are very helpful. Any additional advice would be truly appreciated. Thanks again. Larry - Michael Bovee:
28 Dec 2016 The particular credit you are dealing with is typically not going to go lower than 40%. You have a good deal on the table all things considered. The difference between settling the credit card and filing chapter 7 are small. Read through that link where I cover the topic extensively. The difference between $1,500 and $4,200 is $2,700. I would prefer to avoid filing chapter 7 over that amount. Partly because the credit can heal a little quicker without it, but mostly because you can only file chapter 7 every 8 years. I would want to keep that option open if something catastrophic, like a major medical issue, were to occur, and it created a hole I could not climb out of. - Liz:
02 Jan 2017 Hi Michael, I hope your new year is off to a good start. I am in need of advice on credit card debit. The scenario.. I have not made payments on my accounts for the last 6-7 months. None of my cards in collections, but all have been charged off. I have received offers to reinstate the cards if I pay off the balance, but am worried b/c the total balance amount owed across cards is truly significant. I want to try to negotiate with the companies but need to be clear on my options. What will the impact be if to be my credit if I choose to make a settlement vs reinstating and paying off the full balance? I would like to turn my credit around as soon as possible but have fund limitations. Which option gives me the best chance of doing this? Thanks in advance for your help. - Michael Bovee:
02 Jan 2017 If you are already 6 months late the damage to your credit is done. Making monthly payments now is not going to reverse that for a long time. Settling and putting the debts behind you quickly will, oddly enough, often be better for your credit score at this point. Who do you owe and what are the balances? - Monica:
05 Jan 2017 Hi Michael, I have 58k in credit card debt. Today I spoke with DMB Financial, what is your opinion on them? They offered $971 a month for a payoff around 48 montage or less. I have a mortgage, student loan, and car loan. I have never been late on my payments but now I have used all my savings to stay afloat each month. I feel a little worried that I will go 90 to 120 days without paying the credit cards to build up the debt relief account. Also I am scared of credit cards calling non-stop. Please offer your opinion. - Colleen Carson:
05 Jan 2017 Do you have to include all credit cards in the debt relief program? Your article is very informative. - Michael Bovee:
15 Jan 2017 DMB Financial has been around a while and knows how to settle debt. Their fees are too high in my opinion, and I am an outspoken critic of 3 year debt settlement plans, let alone 4 year settlement programs. There are ways to limit, or even eliminate collection calls. Post a reply with a list of who you owe and the approximate balances. I will respond with how I see your situation and see if I can help you get through the settlements much faster. - Michael Bovee:
15 Jan 2017 No, it is not necessary to include all credit cards and unsecured loans in your program. But read through this article about how to pick and choose which credit cards to keep. - Maria:
31 Jan 2017 Hi Michael, I've read your articles and unfortunately am unsure of which option is best for my situation. My annual salary is 41,600.00. I have a 79,000.00 mortgage, with a maturity date 6/24. My mortgage is 1267.50 a month and current. I owe just over 64,000.00 in credit card debt. All my payments are current and I have an excellent payment history but as you can only imagine - my credit score has plummeted in recent years. I would sincerely appreciate your knowledgeable opinion on which option is good for me. Thank you. - Michael Bovee:
02 Feb 2017 Fill in the talk to Michael form in the right column Maria. I will email you to set up a phone call when I see that. We can go over your finances and mid term goals (next 2 to 3 years) and arrive at the solution that will make the most sense. - Lauflor:
08 Aug 2019 Hi Michael, I came across your article and they have been very useful. I know that they have been writing a couple of years ago, so I wanted to write and see if you can help. We had another child and I had so stay home, so we are left with one income for our household. Long story short we have an old navy visa card that is killing us. We have 3 other credit card debt but all currently with zero percent interest. I think I have no other choice than to default on my old navy card. We also defaulted on a loan and they want us to settle with half of the debt which is 8k, and we can't afford to settle that either. All other accounts are is good standing and never late. I honestly won't be able to return back to work in another 2 years and after I go back to work, we want to be able to move and buy another house, So keeping our credit in good standing is important. What would you advise us? - Michael Bovee:
02 Sep 2019 Who are all of the accounts with? - Priscilla:
15 Sep 2019 Hi Micheal, I have just found your website and it has been pretty helpful. I had recently signed up (beginning of July) for Beyond Finance to attempt debt settlement with understanding my credit score will go down by a lot. Two of my credit accounts have closed now, but I am wondering if I should cancel the debt settlement account and attempt to pay the accounts on my own via contacting them about the situation. I am currently 40k in credit card debt. What would your advice be Thanks, Priscilla - Becky:
09 Oct 2019 Can you tell me which debt relief companies should be avoided? Thx - Michael Bovee:
20 Oct 2019 Who are the creditors you owe, and how much on each account? When did you last pay each account? - Dee:
27 Oct 2019 I have $19k in credit card debt, approx $1500 monthly disability income and $29k cash. I have zero late payments for 7 years. I think my best move is to pay off all credit cards immediately and lock them. My partner thinks we should only pay part of the credit down so we will have cash on hand. This is the same partner that spent $72k in the last three months on what I don't know. I will find out more about that but in the meantime I really think the credit cards should be paid off to avoid interest charges and to ensure the cards get paid before he just spends the money. In your opinion, is there any reason that I shouldn't pay all the cards off? We might be kind of broke afterwards but not really if we learn to live on my income which seems inevitable. Also, is there a good way to request lower interest rates for my credit cards in case I absolutely had to carry a balance? Not that I plan to do that. My debt ratio has brought my credit score down to under 700 but the credit simulators show I'll be back up to 798 after paying cards off. I only found out a few days ago that nearly 3/4 of our money was gone so it's possible I'm in panic mode and not thinking as logically as I think I am. I found your site because I'm researching debt collection scams and I have recently been targeted. I learned a lot from your comments and I may ask some questions later about that. I realize I could be headed down the road to becoming your client but I'd really like to avoid being in that situation. - Casey:
11 Feb 2020 Hello, I have tried to sign up for the estimator and when I enter my email I continue to receive the error message "OOM command not allowed when used memory"; I am unable to proceed with creating an account. I am interested in knowing the estimates of my current debt with debt settlement--is there a direct email I can send this information to for an estimate? All help is greatly appreciated! - Michael Bovee:
11 Feb 2020 That bug is now fixed Casey. You should be able to complete the estimate tool now. - PR:
20 May 2020 Hi Michael, I've found your site and articles very valuable in explaining the debt situations of others here's my story. I'm 40 years old and make $ 2534 a month in SSDI and $ 100 a month in a small pension. My annual income being around $31608 I'm just considering Chapter 7 in Washington DC or trying for a hardship program for credit cards with Citi. I have 31k on two Citibank credit cards and $500.00 on Discover. Half of that was before I went on disability last year. As my cash flow decreased my cards have gone higher. I also have a mortgage payment that is $1650 including $350 condo fees per month. It was affordable when I used to work. Now I've got my house on the market to sell and use the equity to pay off credit card bills and make a small down payment on a less expensive place to live in the suburbs. My house isn't selling and though I'm current now i don't have any doubt my debts are climbing to being unaffordable. I consulted a housing counselor nonprofit but they couldn't help me unless i was willing to stop payments or already behind on debt. I havent been able to get out from under these debts your best advice would be appreciated. - Michael Bovee:
20 May 2020 Do you have your mortgage on forbearance right now as well? How much is the equity in the home?
