Hypotheticaly

[Klesko]

This is just something I was wondering about. I dont advocate doing it so dont jump on me about that.

 

Lets say a person is 100k in credit card debt and pays 2.4k a month to those companies. It would take about 5 years to pay off those cards paying that amount. However paying 2.4k a month means they are broke and some months even negative in cash flow. The person also can not file for BK 7 because they make too much or have other issues which prevent them from doing so.

 

Would this plan work? The plan listed is similar one to the ones debt consolidations companies use.

 

Plan

Stop paying on all of those cards, saving 2.4k a month. The person then puts 1.2k a month into a savings account for later use. Once the cards going into CO status the person then waits for JDB to write. Once the JDB writes they first as for DV and if the company validates which would be likely with a very new debt then the person offers a settlement for 20% of the original value of the debt. The money the person put into savings would be used for this. If the person gets sued by JDB they can just offer 20% to settle the account.

 

Advantages

Allows the person to get out of a negative situation per month with income right away.

Allows the person to basically start fresh (debt wise) in 24 months.

 

Disadvantages

Credit goes into the toilet for at max 7 years

Person gets blacklisted by some cc companies

 

Just wondering what people think the advantages and disadvantages to this would be.

[mrliberty]

I think this is done frequently. I know I basically did this 5 years ago when I lost my income for about 3.5 months. I specifically discussed my options with all my creditors and only 2 gave me any options. The rest COd and I spoke with a few for many years negotiating a reasonable balance to pay but never received what I asked for. None sued the entire time (but I am expecting to get served by one in the next few months). The downside is that I did feel some guilt for not making good on past debts, but I had all the paperwork from my ongoing negotiations that never really went anywhere because people would rather get zero than 90% of what they said I owed. Since I have documentable negotiations on what I thought was a fair balance, I no longer feel any guilt that they lost the money. Blacklisted, yes, but no longer guilty over their inane tactics that separated our numbers by a hundreds, not thousands.

 

One thing to remember: banks are not your friend, but they're each other's friends. The banking industry is a cartelized industry, so they don't truly compete with one another, but help one another. I would NEVER trust a bank not to fink on my balance with them to another bank, even if the law pretends that they can't. Bank accounts gets garnished in a heartbeat.

[bird2006]

i would try calling the cc companies and getting any interest rate reduction or payment plan they could offer before i would stop paying.

[Klesko]

Any other thoughts?

[Operation_Home_Ownership]

I too think this happens more than we might think and just ONE of the reasons why creditors play hard ball with savvy debtors who approach paying back their debts this way.

 

The major disadvantage is the emotional roller coaster would be too high of a price to put this plan in motion for me. Plus it is a gamble to know you will not need your credit for the next 7- 10 years.

[dingaling]

I did something similar, but my reason for giving up because I could not pay any debt. I let most of my cards go into default.

 

First, most will not go as low as 20%. Think more like 50% average.

 

Second, they will find that money in your account. Count on that. You would need to put it into a safe deposit box.

 

Third, prepare for the calls from the OC as soon as you stop paying. Many of them will call numerous times per day, seven days a week. You can't get away from it.

 

Fourth, some creditors, like BOA will offer you a very good deal (about 30%) of the balance about four months after you stop paying. But, if you don't take the deal, they send it to a CA. And they want all of their money at once.

 

Fifth, for that time between stopping payment and it going to collections, most of the creditors put you on the default rate which is about 30% APR. For the six months before they send it to a CA, that really adds up.

 

Sixth, many creditors have begun to sue a lot more now with all the defaults going on. You can probably expect at lest one lawsuit. And, you really don't have a defense.

 

Seventh, no one has sued me because, on paper, I am a pauper. It would be a waste of time. They want to spend time on people who they can sue and win (like you). From what you said, you cannot really fake being destitute. I think you would almost dare them to sue you.

 

Eighth, JDB's and CA's always lie, cheat, and steal. If they sue, they usually try to get away with adding a ton of other expenses. Then you have to deal with that. Can you do a lawsuit on your own or will you have to get an attorney? If so, how much will that cost?

 

I defaulted on most of my debt five years ago because of illness and unemployment. We make enough to pay our current bills and live in a decent place (a rental apartment). No one has sued me and I am approaching the SOL on a few of my debts. Other debts are not even close to that (I defaulted on some of them 18 months ago). Every day I sit by the mailbox waiting for the letter from a CA. Or, I constantly wonder if I will be served. A few of the CA's I am dealing with have a reputation for suing and then lying about serving the defendant, so they get a default. Some are using arbitration, which is stacked against the debtor. I worry about that and the possibility they will do it without serving me.

 

With your financial condition, I suspect that if you are sued, they will not deal with you. Why should they? You have the money to pay. They will probably not even offer a deal. They will want their money, interest, and anything else they can tack on. Honestly, this is going to be hard for you.

 

This is the reality for me. Before you do it, you better think it through.

[Klesko]

I was more thinking this...

 

All of these accounts are in my wifes name

I would let go

BOFA (I would take the 30% offer whenever they offer it)

Amex (I know she would be blacklisted)

Citi (3 cards)

Home Depot

Juniper

 

Total = 63k

 

I would keep (I want to keep some cards so I can rebuild her credit in 3 years.

NFCU VISA/MC

Best Buy

Dell

Rooms to Go

Cap One

Wachovia

 

Total = 10k

 

We have a joint account now but I would just start using my NFCU , which is just in my name, as my main account and let our existing joint account sit there with not much or anything in it. Her reported income is 2.5k a month, mine is over 8k.

 

You might be asking why do this.. We TBH we over extended ourselves. Our gross is about 7.9k a month and our house, cars, credit cards and loans, utilities add up to $8500 alone. In about 4 months I am going to try a refi in my name only and I think I can get about 50k extra in a cash out and I will use that to help reduce about 1k a month in payments. But my wife is a teacher and she wont get paid for july, august so we are going to be even more short over the summer.

 

We are cutting back, have been. I cut the cable off to basic, I cut everything I could for now. I have 3 major loans which will be paid in 2 months and that will reduce our payments by 600 a month. Also during the summer we wont have to put our kid in day care and that saves 700 a month. So if I were to just stop paying on the cards listed above and those loans get paid then we will be up about 1500 a month and break about even during the 2 months of the summer..

 

So basically doing this would give us the breathing room we need. Its not my first choice.. but its a real option IMO.

 

If anyone has any other ideas then I am up for hearing them. We need to cut about 1.5k a month out right away.

Edited April 18, 2008 by Klesko

[Operation_Home_Ownership]

Sounds like it is time for some temporary MAJOR sacrafices. This can last as long as YOU make it, because with a concrete budget with the funds you bring in you can definitely digg out.

 

I noticed you said "cars" can you put vehicles up for sale, leaving the household with one?

How are your expenditures on food, entertainment, cell phones, clothing, etc...I humbled myself and tracked exactly where my $$$ was going, I was surprised to see where $$$ was slipping through unnecessarily to the tune of 100s of dollars a month.

 

I really dont want you to have to put your wife into financial ruin, especially when you dont seem like that would be an option you would choose for yourself, being that you have kept your finances somewhat separate.

[Klesko]

Cars we are about 4k each upside down on so not a real option. Plus we both need cars, I work about 30 miles in the other direction she works. We dont spend money on much except gas, baby supplies and food.

 

I would do this for myself but I plan to REFI our house in about 4 months and I can do this in my name only with just my income is why I want to keep mine clean.

 

I have made long term plans which gets us out of this but the truth right now is we are negative about 1.2k a month in income. We had a child recently and daycare really threw the budget even worse off, its 700 a month now but we wont need it during the 2 months of the summer when my wife wont be working. Then during the summer we are going to be negative 2.6k a month for 2 months. Right now we are paying 2.8k a month on credit cards so 33.6k a year just on credit cards.

 

If I stick to my 36 month budget and keep things the way they are we will defiantly be negative 7k over the next four months which I will need to come up with via either cash advances from my navcheck line of credit. I have taken on additional jobs already which are going to help, I am trying for a few more. The first one is bringing in about 700 more a month but I am limited in my hours as I already work a ton.

 

If I could get my house REFI cash out for about 50k then I would be saving approx 1400 a month from paying off cards and lower interest rate on my house. But there is no promise of this since it depends what my house appraises for.

 

I only have about 5k in reserves ATM. I had 15k in dec of 07 but my wife took 2 months off when our kid was born and with all of the expenses it ate into my savings.

 

Anyway I am just looking for ideas...

[powers64]

Well, the worst thing you can do is what i did (and i think some others on this board) - that is keep trying to pay and then having to stop a year or two down the line. I ran into trouble in 2002 and really struggled throughout 2003-2005 to keep up with payments, but ultimately couldn't. Not only did i not get ahead on any of my cards, i stretched out my bad credit for an additional 3 years.

 

If I could go back, I would have stopped paying in 2002, but I also would have handled it differently. You can stop the payments, but the fear/panic accelerate. Don't underestimate the toll that it is taking and will take on your family.

 

The one concern I had reading your post is this: is it really realistic that you would put away 1500 per month? It sounds like you guys are pretty strapped. I know when I have been stretched thin for an extended period of time, there are so many things I have gone without, when I suddenly have some extra money, it goes very quickly.

 

If you really can (and will) do that. I do think you are better off stopping, then at least having some reserves to PFD later. I would research each of the creditors on these boards and really figure out how each of them handle things and try to work it out.

 

2 last things:

 

1) when i got into serious trouble, a couple of my close friends stepped into help me. It is very very difficult to open up your finances and share them with anyone else, but it was enormously helpful. They organized everything for me and contacted my creditors. They were able to negotiate with cooler heads and work through the details that I was too paralyzed to deal with. If you have a relative or close friend that you can "outsource" this to, I would definitely call in some support.

 

2) my observation is that people hang on to their houses for much too long. Refinancing is a bad idea (unless it really lowers your interest rate and monthly payments). You are just draining more of your reserves, but you will still be paddling hard every month, and in all liklihood, be back in the same place in 6 months, with no equity.

 

If you have that kind of equity, sell your house, pay your debts and give your family a clean start. You will be back in a position to buy in no time.

Edited April 18, 2008 by powers64

[powers64]

btw..you seem inclined to go that route... but if you are still open to paying off....there are a number of payoff strategies on these boards (snowball etc). I now manage my money with a program that comes from the book "secrets of a millionaire mind". I would be happy to outline it here if you are interested. I think it is kind of a balance between giving everything you make to your creditors and giving nothing. let me know if you want me to post it.

Edited April 18, 2008 by powers64

[Klesko]

Well, the worst thing you can do is what i did (and i think some others on this board) - that is keep trying to pay and then having to stop a year or two down the line. I ran into trouble in 2002 and really struggled throughout 2003-2005 to keep up with payments, but ultimately couldn't. Not only did i not get ahead on any of my cards, i stretched out my bad credit for an additional 3 years.

 

This is the MAIN thing I am trying to avoid. I have a good amount of credit knowledge and how things work at this point so I wont be scared when, if the collection man calls. It will be much harder on my wife but its my job to keep her calm about it. Its just MONEY and its more important to keep your family healthy long term then worrying about the short term. Also business do this all of the time, so the whole moral thing isnt an issue imo.

 

I have a good job and my wife has a stable one. If I take these actions NOW I am confident we can build savings, and pay down the existing credit we have and be ready when or if they come after her. My biggest fear is to just barely get by for the next 6-12 months and then BOOM, something bad happen and it all fall apart and I am at then where I could have been at now. Except then I would have ZERO savings and I might be in real trouble, may even lose the house.

 

I want to refi the house because right now I have a 80/20 with the 80 at 8.5 and 20 at 11.5 . I am pretty confident I can do a FHA 30 fixed for about 6.5 lowering my payments 600ish dollars a month.

[powers64]

How is your wife's credit now? Can she open a couple new tradelines, so she has some good open accounts? Also, what is the oldest tradeline she has? She might consider focusing on keeping that one, so she keeps a long history. Especially if the refi on the mortgage cuts her out.

[Jen23514]

time for a second job delivering pizzas.

 

100k in CC debt? as someone earlier said, MAJOR short term sacrifices are needed.

 

have you posted in the money mgmt forum your budget and details of these cards?

[Klesko]

I would keep (I want to keep some cards so I can rebuild her credit in 3 years.

NFCU VISA/MC

Best Buy

Dell

Rooms to Go

Cap One

Wachovia

 

Her credit right now is 100% clean. Just her scores are low because of utilization, its about 90% (I think they are about 640EX, 620EQ, 660TU) . The cards I mentioned above are the ones I would keep so rebuilding would be easier.

 

NFCU VISA/MC 1 year old (I keep this because they are good long term to have, they are at 10.9 and I dont think they rate jack when her other cards go bad. )

Best Buy 1 year old (Only owe 1k at 0% interest until may 09 so not worth not paying)

Dell 4 years old (Owe 1k, keeping for age)

Rooms to Go 1 year old (Owe 2.2k but 0% interest until 2011)

Cap One 3 years old (Owe 1k, they are a PIA from what I read on CO)

Wachovia 5 years old (Owe 3k but this is her oldest and would be nice to keep)

 

The ReFi on the mortgage will cut her out... But if I keep the cards above in the good and let the other mentioned cards go I think he recovery in 3 years will be much easier then some peoples. The plan would be to finish paying the listed cards above off by the end of the year with some of the extra we would have each month.

[dingaling]

Just a warning. If she defaults on one or more cards, the ones she keeps open may automatically hit her with the default APR (30% or so). It is called universal default.

 

After she stops paying CITI, they will offer a deal. You can get 0% APR for five years with each payment being 1/60th of the total amount. I don't know how much that will help you in interest saved. But as soon as you miss that first payment, they will hit you with 30% APR. I don't think they will give you the best deal at first. So that 30% adds a lot to your amount owed until you get the deal.

 

Some people here say that CITI gave them deals for 50%. But I don't know how far behind they were. One person even claims CITI settled with them for 20%.

 

There is a lot posted here about dealing with CITI on their hardship program. I defaulted on one big CITI and my wife went on the hardship program with her five CITI cards. My default went to a CA who has not done anything in 6 months.

 

I agree with some of the other posters - if you are going to take a hit, do it now on everything. Don't plan on doing some now with the hope that everything will be better in the future. Thats what I thought and the first debts I defaulted on are almost beyond the SOL. But the problems on those I just defaulted on are just starting. I wish I had let everything go five years ago. Then I would be near the end of my problem.

[Klesko]

time for a second job delivering pizzas.

 

100k in CC debt? as someone earlier said, MAJOR short term sacrifices are needed.

 

have you posted in the money mgmt forum your budget and details of these cards?

 

I have, and I am working on it to get it right. We made a bad mistake to remodel our house with credit cards and that caused things to get out of control. We then had a kid, and that caused things to get even more out of control.

 

I had a deal fall through which was supposed to make me 125k on the sale of some software I had been working on. I am still working on some deals for it but it may not generate anymore then 25k now. Also I did take on a 2nd job consulting making about 700$ extra a month with some other income related to it. For example I am making about $1800 extra this month from it but I expect it to average 700 a month. I am looking for 1 more company to do this with but anything more and I simply wont have time.

[Carrie2008]

Having had bad credit for about 4 years now, I just wanted to add that 7 years is a VERY long time. It may sound like a good option right now, but speaking from personal experience, it's not. I WISH I had bit the bullet back then and paid my CC's instead of pretending they didn't exist. Also, don't forget that a lot of companies check your credit when you're applying for a job.

[Klesko]

Having had bad credit for about 4 years now, I just wanted to add that 7 years is a VERY long time. It may sound like a good option right now, but speaking from personal experience, it's not. I WISH I had bit the bullet back then and paid my CC's instead of pretending they didn't exist. Also, don't forget that a lot of companies check your credit when you're applying for a job.

 

She is a teacher and I know they dont check your credit in NC for that. I know 7 years is a long time but the plan is to use my credit during the time I am rebuilding hers. We have our house, cars so if we did this I cant see needing her credit anytime soon if ever.

[Fabulous]

This isnt hypothetical at all. You're wanting to do it. At least be honest about it.

 

I was more thinking this...

 

All of these accounts are in my wifes name

I would let go

BOFA (I would take the 30% offer whenever they offer it)

Amex (I know she would be blacklisted)

Citi (3 cards)

Home Depot

Juniper

 

Total = 63k

 

I would keep (I want to keep some cards so I can rebuild her credit in 3 years.

NFCU VISA/MC

Best Buy

Dell

Rooms to Go

Cap One

Wachovia

 

Total = 10k

 

We have a joint account now but I would just start using my NFCU , which is just in my name, as my main account and let our existing joint account sit there with not much or anything in it. Her reported income is 2.5k a month, mine is over 8k.

 

You might be asking why do this.. We TBH we over extended ourselves. Our gross is about 7.9k a month and our house, cars, credit cards and loans, utilities add up to $8500 alone. In about 4 months I am going to try a refi in my name only and I think I can get about 50k extra in a cash out and I will use that to help reduce about 1k a month in payments. But my wife is a teacher and she wont get paid for july, august so we are going to be even more short over the summer.

 

We are cutting back, have been. I cut the cable off to basic, I cut everything I could for now. I have 3 major loans which will be paid in 2 months and that will reduce our payments by 600 a month. Also during the summer we wont have to put our kid in day care and that saves 700 a month. So if I were to just stop paying on the cards listed above and those loans get paid then we will be up about 1500 a month and break about even during the 2 months of the summer..

 

So basically doing this would give us the breathing room we need. Its not my first choice.. but its a real option IMO.

 

If anyone has any other ideas then I am up for hearing them. We need to cut about 1.5k a month out right away.

[Fabulous]

Why don't you file Chapter 13???? Same hit on the credit but much easier to manage

 

Having had bad credit for about 4 years now, I just wanted to add that 7 years is a VERY long time. It may sound like a good option right now, but speaking from personal experience, it's not. I WISH I had bit the bullet back then and paid my CC's instead of pretending they didn't exist. Also, don't forget that a lot of companies check your credit when you're applying for a job.

[LBCS]

LOL, good catch.

 

But it's his wife's credit that will be ruined, not his.

 

This isnt hypothetical at all. You're wanting to do it. At least be honest about it.

[melikey]

LOL, good catch.

 

But it's his wife's credit that will be ruined, not his.

 

This isnt hypothetical at all. You're wanting to do it. At least be honest about it.

I wouldn't do this to my DW. I did the same thing to my own credit 3 years ago during divorce. I didn't pay for anything. Now 3 years later I really wish I had stuck it out. I still ended up paying all the debts, some settled, and now I am rebuilding. 7 years is a long time. OP you have an advantage that I didn't have at the time...... CB. I would have done things totally different!! don't make the mistake that many of us have made.

[whoneedscredit]

100K in cc debt, a mortgage, two cars, a new baby...have you considered CH 13 or Ch 7?

 

Yeah I know no-one WANTS to file, but it may really help you out. You can reaffirm your mortgage and a good attorney can point you in the right direction for either keeping your cars or getting new ones.

 

I don't want to be a party pooper here, but as your little one gets older the expenses are going to go up. If you consider CH 13 or CH 7 that could possibly free up your wife to stay home with baby until he's a little older (if she wants) cutting out the need for daycare and two cars all together.

 

Speaking from experience, years and years ago DH and I got into some serious money troubles, at the tender age of 22. We had just had a baby and just couldn't keep things afloat any longer. Most everything was financed in my name, I filed CH 13 in my name only - with the intention of keeping DH's credit clean. Yeah it worked, but the arrangement took a tremendous toll on our marriage. It suddenly became an unbalanced relationship. We both worked hard, I made better money than he did, but he was the one with the good credit - emotionally it took a toll. We have managed to work through it but it caused a major fissure between us for years. Keep that in mind before doing anything that will be really one sided.

[sedric1]

30% at bofA?

i havent paid in them in 3 years and the best i have heard is 35% after several weeks of calling in!