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Smartest Credit Repair Option - Defaulted Private Student Loan Settlement or Credit Card Pay Off


Headwaters44
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The last post in this topic was posted 3553 days ago. 

 

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Hello, Newbie here and excited to find such a helpful and vast forum site on all things credit! Anyway, I've recently decided its time to start fixing my poor credit that has largely been caused by credit cards used in my early 20's and a private student loan balance that ended up going to collections. My private loan debt is $19k and credit cards are $7k (recently paid down from 12k) I'm a recent college graduate (2010) and was lucky enough to get a good job right out of college. I just got a new job 3 months ago that pays even better than my old one which coupled with having a newborn son, has inspired me to get my credit back on track as soon as I'm able.

I recently sold some assets and have managed to scrape together $7k I'd like to use to jump start my credit road to recovery. So my question is, which is a better decision in repairing my credit. Settling my student loan debt (which after speaking with a local debt settlement attorney should be possible, at least on the 15k loandisbursement debt. The remaining disbursements a are small adding up to the 19k). Or payoff all my credit cards in full and shut them down.

Obviously I'm kind of leaning towards the loan settlement option as that is what's most detrimental to my credit, considering the credit cards are not in default. But I also wonder if paying off the credit cards will not only immediately improve the look of my credit report, but also will allow me to use those would be monthly payments to get the 19k debt paid off in 2-3 years. That way I could also avoid the painful debt settlement smear on my credit report. But is the damage already done in that regard, due to the default?

I should also note that my primary goal is to purchase a house soon, but I know that will be challenging with my private loan problem. My choice in this matter will be heavily swayed by the ability to obtain a home loan hopefully sometime in the next 5 years. Just looking for some experience and insight on my predicament and I thank all in advance.

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Do you only have private student loans or a mixture of both with Federal Student Loans? Do you have 15 or 19 or 34K worth of student loan debt? Have you contacted the collection agency or set-up any repayment for any of your student loan debt?

I have both private and federal but my Federal loans are in good shape.

 

I have a 15k disbursement and (3) approximately 1.5k disbursements totalling around 19.5k on private loans.

 

They sent the debt to a collection agency previously but now it's back in the hands of Key Bank (original creditor). A year and a half ago I contacted the original creditor when I was a little more hard up financially and offered them $50 a paycheck automatic direct deposits ($200 month) but they said it wasn't enough. I think they wanted at least $350.month. I did recently get a settlement offer letter from the original creditor for 60% settlements on amounts due. I have not contacted them since then.

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You need to contact the collection agency to set-up a reasonable and affordable repayment amount based upon your proven and documented income and expenses to help determine your new monthly payment amount. Are you in a position to settle this debt?

 

Yes, I have $7k available to attempt to settle.

 

I think ultimately, my plan is to start at $5k for the full settlement and present that as the amount I paintstakingly procured to attempt to settle (which to be honest is basically the truth). Assuming they probably won't bite I will slowly work my way up to $7k for the full amount owed. If they absolutely refuse to accept, my last settlement offer will be $7k on the $15k disbursement.

 

Either way I will be asking for a letterhead from them stating something to the effect of, "Upon proof of payment of $XX,XXX.XX to KeyBank, this letter hereby releases XXXX XXXXXXX of his loan debt in the amount of $XX,XXX.XX."

 

They may not honor this request, but I'm also going to attempt to request a condition of agreement that requires them to also list something like this on the same letterhead, "Keybank will agree to update the credit report filing to 'paid as agreed' for the said payment agreement'

 

If I can't get them to come to agreement, I will simply go with Plan B of using the funds to pay off my credit cards and set up a payment plan on the private loans.

 

Please feel to comment on this intended approach with any recommendations or caveats....

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I can tell you this right now, that they will not accept pennies on the dollar, especially when they can easily sue you and obtain a judgement and then issue a wage garnishment for full payment. They will normally accept a 10% discount off of the total balance owed.

 

In reference to your credit reporting - this could be a good idea and may work (if you get it in writing) and then set-up a reasonable and affordable repayment plan.

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I can tell you this right now, that they will not accept pennies on the dollar, especially when they can easily sue you and obtain a judgement and then issue a wage garnishment for full payment. They will normally accept a 10% discount off of the total balance owed.

 

In reference to your credit reporting - this could be a good idea and may work (if you get it in writing) and then set-up a reasonable and affordable repayment plan.

 

Thanks for the responses so far hodap. And Yes I know they will want to minimize their loss, but they have already offered a 60% settlement, and the settlement I can afford is between 25-46%, so for now I have to offer what I can.

 

Does anyone have any advice on negotiating with a creditor on a settlement? Obviously my first step will be to make sure I'm negotiating with someone who has the authority to make an actual settlement.

 

Should I plan on putting a few days in between my 5k, 6k, and 7k offers to give them plenty of time to think, or is it safe to assume what they present on the phone is their final offer?

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Guest WhatNow?

There are a few self proclaimed "experts" on these debt sections of the board I've noticed. Some of the advice I was given here on negotiating and settling debts was a little misleading. I too was offered a lower settlement option than the supposed typical 90%. That was right off the bat. I offered lower, about 70% and they snatched it almost before I could finish my sentence. Is your student loan still at the OC or back at a collection agency? If a collection agency, wait towards the end of the month for your offer. A 90 day assignment is typical with them. If they can't collect in 90 days it goes back to the OC. They try to close cases out by the end of each month to get their commission. Make sure they know that your offer is likely the best you can do.

These boards are great and there is plenty to be learned. Take everything you read with a grain of salt though (including my post), because every situation is unique. And if I didn't know any better, Id say that active collection agency employees give out poor advice on this board sometimes in an attempt to further worry people already in financial distress. A diabolical scare tactic. If your paycheck was dependent on people paying their old debts off, wouldn't you be here too? I'm sure that's just the conspiracy theorist in me though. :)

Good luck!

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All collection agencies work different and for different situations - WhatNow's settlement wasn't pennies on the dollars, but it was a good enough offer for the collection agency to accept to settle their private student loan debt.

Edited by hodap2001
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  • 4 weeks later...

So an update on the situation. The lender agreed to accept a settlement amount of $6,500 to settle the $15k debt. I requested a letter from them as stated above and here is what they sent me:

 

"This letter is to confirm that we have agreed to accept $6500 as Settlement in full for the above referenced account. Once funds are received and applied to your accounts, the account will be reported to the credit bureaus as "Paid in Full, Was a charge off", and will denote that the account was paid in full for less than the full balance due. Please be advised that you will receive a 1099 tax form, etc etc etc.This offer is good for 30 days from the date of this letter.

 

So obviously I am leaning heavily towards getting this squared away as it's an agreement pretty heavily favored in my direction. But to thicken the plot, I ran my credit score through FICO after I received this letter to discover my credit isn't as bad as I thought at 624. So now I'm even more torn about my inital question. For someone looking to purchase a home in the next year or two, do i settle on a 15k dollar private student loan collection debt or pay off the remaining 7k on my 15k credit card balance?

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Do the student loans. Credit card debt is much easier to manage than student loans.

 

If you don't start to make payment on it in some way it is likely that you kicked up enough dirt to get sued. I would definitely take a <50% settle on a private student loan.

 

The credit card won't affect your mortgage app unless the monthly payment is throwing off your ratios. What will crash your mortgage is the student loan, because the bank will fear a future judgement and lien.

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