Given settlement as an option on my credit card. Should I take it?

[day2day]

Hi everyone,

I recently posted how I called to get a rate lowered on a credit card, as I needed another 6 months or so to pay it down substantially. What the conversation turned into with the credit analyst was a personal attack on me, followed by the closing of my account(which to this day has NEVER had a late payment, or missed payment.)

I checked my credit score today with Vantage and Fico and they were 990 and 708 respectively.

Now I continue to have 42k on a credit card(and a plan to pay it all off within 2-3 years.) However they made me a settlement offer in the 18k-21k range.

Should I just settle and save my family and I 24k? I will take a hit on my credit score, but how big of a hit? 100 points? 50???

Is settling just as bad as bankruptcy in the eyes of lenders?

My whole goal is to be off of credit altogether as soon as possible. So if I take the settlement, and pay off the rest, it could be relatively smooth sailing.

I'd love some advice. By the way, I never asked for the settlement...the female credit analyst closed my account and put me in their department. The settlement people can't believe that with my history she did it, but here I am.

[magyar123]

Settlements in the range that you're talking about will trigger 1099s, and a huge additional tax burden.

[AngelinaCatHub]

If you are going to bk, it could throw a bit of trouble your way. It could look like a preferential payment and if you are getting a break, how long to you have to pay the smaller account. If you intend to bk 7, it will be discharged. If you go 13, it depends on what discount the Courts would make as you only have five years to pay. I don't think the discount would be taxible under those terms, since it comes from the Court.

'Hub

[jo23171]

are they asking for that settlement up front or monthly payments?

your credit report will just say account settled/closed. I don't think it will be a big hit on your score. Better than a BK, that's for sure.

[HHM]

are they asking for that settlement up front or monthly payments?

your credit report will just say account settled/closed. I don't think it will be a big hit on your score. Better than a BK, that's for sure.

That's not true, settled accounts are big negatives. In any event, the issue is the TOTAL cost, the settlement plus the tax burden and how the amount is to be paid, are they asking for lump sum or payments? BK is a one time hit that really only effects your score for about 12 months (yes, it stays on your credit report for 10 years, as a public record, but only effects the score for about 10-20 months).

If this is the only credit card you have and you have no other issues, then you should probably take the deal, but if you have other debt, you should not take it.

[ready2puke]

I'd take the deal if your not going to BK and that is your only big debt...I bet the taxes will be alot less than paying the entire amount. Can I ask you gave you such a deal?

[day2day]

Hi all...

The deal was being reviewed when I wrote this. SO I get the call back today, and its a big negatory on the deal. He reviewed it with his manager, and they decided against it.

I was bent out of shape.

To put it in perspective for everyone...this is Home equity debt. I put a big chunk of 46k on it 8 months ago at 0%. I have a decent job, great credit history, and rent out two area of my house. So, other than this I have a couple small balances for everyday items on a couple of cards.

I didn't even CONSIDER the idea of a settlement until a credit analyst took offense to something I said, and closed my account and gave me the settlement as the only option. The fellow who I have been trying to settle with didn't even understand why I was there, but since my account is frozen they HAVE to settle with me even though I am not late on ANY payments.

ANyways...I was ticked about them renegging, so I called them again and spoke with someone else. He agreed to settle with me for 18k, and is sending me the paperwork. IN that time I will weigh everything, but since my wife has a great credit history, and we don't use our credit all too often I am not too worried about the income tax increase which I expect to cost me 3-6k at the end of the year. It gets rid of 20k immediately, and I can pay the remainder of the 18k this year.

I don't want to answer which company it is until I have figured this out. I would be making a one lump sum or spread it out....not sure yet.

[ready2puke]

Good luck and good job sticking up for yourself..Keep us posted ok?

[day2day]

Thanks for the encouraging words.

I did have a question, and hopefully somebody would know the answer...

I will pay the 18k with a 0% credit card. Will my remaining cards including the 0% card change the interest rate if they see I have settled/discharged debt?

[HHM]

It's certainly possible. On your credit report, when an account is settled, it actually says so, instead of saying paid as agreed, thus, having a settled account is a negative. However, whether settling an account will trigger the universal default is another question. I can certainly see the new creditor offering 0% not honoring the 0% because you have a settled account.

[BigJohn]

The original poster, I believe has always made payments on time. So if he pays the loan off early as a result of an offer made by the credit card loan, then the paying off of the loan should not be looked at as a negative. The original poster did nothing 'wrong' and if he takes advantage of the payoff offer, he should not be penalized for it. I would call the FTC and ask them what they think. I would also reread the docs that are on the way to see if it has words that reflect a negative conotation.

[HHM]

The original poster, I believe has always made payments on time. So if he pays the loan off early as a result of an offer made by the credit card loan, then the paying off of the loan should not be looked at as a negative. The original poster did nothing 'wrong' and if he takes advantage of the payoff offer, he should not be penalized for it. I would call the FTC and ask them what they think. I would also reread the docs that are on the way to see if it has words that reflect a negative conotation.

That is nice in theory, but false in practice. When it comes to credit reporting, a settled account is a settled account. As you mentioned, you should review any paperork related to the offer.