I know people usually say to avoid debt settlements, but my credit score has already dropped 200 points and is now in the high 400s. I make around $3k a month after taxes, and after rent, utilities, and other expenses, I have about $1,200 left.
Is debt settlement really that bad? I know it hurts your credit score, but mine is already pretty low. I don’t think I can get a loan to consolidate, and I’m not ready to consider bankruptcy yet. I’ve heard about the snowball method, but I’m not sure if I can pay much beyond the minimum payments. The debt is spread across 4 credit cards and 2 loans.
Keller said:
If your score is already going down, maybe look into bankruptcy. Why keep paying if you can discharge the debts completely?
That’s what I’m thinking too. My score can’t really go much lower, and even though it’ll take years to recover, it might be worth it. Thanks for the advice!
With your score, a debt consolidation loan or balance transfer isn’t an option. If you’re behind on payments, credit counseling might help, but debt settlement could work too. Your score can’t get much worse. Try settling on your own to avoid extra fees from third parties.
@Harper
I’m not current on payments, so that’s a problem. Is there a way to settle without needing a lump sum? Saving up for that is really hard for me right now.
Flynt said: @Harper
I’m not current on payments, so that’s a problem. Is there a way to settle without needing a lump sum? Saving up for that is really hard for me right now.
You’ll need the full amount ready to settle. Without it, it’s tough to negotiate.
If you’re struggling with minimum payments, debt settlement or bankruptcy might be your best options. You don’t have too many debts, so try negotiating them down yourself instead of paying a company that takes 15-25% in fees. If you do go with a company, ask about fees and legal representation.
Debt settlement isn’t bad, but the companies offering it can be. Don’t sign up for monthly payments to a company that promises to negotiate for you. They often don’t help much, and some people get dropped when they need legal protection.
Try negotiating settlements yourself. Save up for lump sums when possible. If I were you, I’d save enough to settle the largest debt for 60% and keep that aside in case of lawsuits. Then start saving again for the next settlement.
With your income and debt, bankruptcy might be better. You’d qualify for partial repayment and avoid lawsuits. I didn’t pass the means test, so I settled instead.
@Freeman
Saving for a lump sum is hard because of the minimum payments. That’s why I was considering debt settlement companies—they pool everything together. Bankruptcy might be the way to go, though. Even if I file, would I still owe some of the debt?
@Flynt
Debt settlement companies only pool after you default. You can default on your own to stop minimum payments.
Another option is credit counseling through non-profits. They can lower interest rates and help you avoid default. You make one payment to them, and they distribute it to creditors.
Bankruptcy depends on a means test. If you’re above the threshold, you’ll do Chapter 13 and repay part or all of the debt. If you’re below, you’ll do Chapter 7 and have the debt liquidated. Look into it more.
Try asking your creditors for a hardship program. If that doesn’t work, consider a debt management or counseling company to negotiate lower interest rates. Debt settlement requires defaulting, and creditors might not accept the settlement, which could lead to lawsuits. Also, the money saved might count as taxable income.
Contact your creditors about hardship programs. They might lower your interest rates and close the accounts. If they won’t help, look into credit counseling. Some lenders only negotiate with them. You’d make one payment to the counseling agency, and they’d distribute it to your creditors. This can also help prevent lawsuits. Another option is waiting for the statute of limitations to pass.