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Questions before I start contacting my CC companies


Vderon
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I have a substantial amount of credit card debt, and although I have kept up with the payments, I don't have much to show for it. It is getting to be very difficult to pay the cards, but I'm not in trouble yet except for how much interest I am paying. I have eliminated all non essentials and am not using my cards. I have added a part time job at night in addition to my full time job to help keep up.

I have $47,000 available equity to tap into, but I have seen posts here that advise against using home equity loans to pay off credit cards. I have nothing in collections, and have never missed or been late on any credit car payments. My credit score is 650, due to the high balances on my cards, and the balance versus credit limit issue.

If I call to try to negotiate a settlement or ask for an interest rate reduction, will they cooperate if I still have equity in my home that I can tap into? Does my good payment history hurt me in negotiating a better interest rate?

Finally, my daughter will be applying for colleges soon. Does my debt to income ratio hurt her or help her in getting loans and aid?

Thanks for any insight you can provide.

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The better your credit history looks the more difficult it is to negotiate settlements if that is what you want to do. As for interest rates, what are they at now? You can call and ask. Have you closed these credit lines down? If you try and get on a hardship program you will want to beat them to the punch as they may close the accounts, while other times they may simply close them down for charges internally.

As for your debt to income ratio helping or hurting getting financial aid, it all depends on the school. They will require your daughter to disclose your income. From what I remember there is not a part to disclose debt. Now some schools will take special circumstances into consideration as to why the EFC should be reduced, based in this situation on your debt. You may have to provide proof or something of that nature, definitely a letter signed by you at the least. While this may be somewhat embarrassing, it is for your kid and I am sure she is worth it and that you would agree. Again, you will want to contact the school's financial aid office and explain the situation. You can do this without disclosing your name just to get some information.

I was in a somewhat similar situation with respect to CC debt and having a perfect payment history, which didn't help my argument to them as to why it would be in their interest to settle. I had to cease payments to these creditors and wait between four and six months before they would settle at acceptable terms, between 40 and 53%. If you choose this route and want to use equity in your home to pay the settlements then you will have to tap this money before you become delinquent. If you do go delinquent, have a good reason to give your creditors and keep the lines of communication open with them. Don't ignore them. If you do they will throw it into collections very quickly, which may not be in your interest.

The reason why people say to be careful about using equity in your home to pay off CC debt is because you are turning unsecured debt into secured debt. Now if you can't pay the bill on the loan they can come after your house since it is attached to it. HOWEVER, if your credit card debt is the result of one-time unavoidable expenses, emergencies of some kind, or you truly have learned your lessons, then using equity (possibly in conjunction with settling the accounts) is not necessarily a bad move. Another reason why people may argue against it is because you pay off your CCs with the home equity loan and assuming these accounts are still open they are now clear to be charged way up again. That is why it is so important to weight the pros and cons for your personal situation before going down this road. If you do charge up again you now have lots of secured debt and unsecured debt...no good if you are having problems paying the bills.

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Thanks for your reply. I have closed one of the accounts, and will close the other two in question. I am not using them, but I saw other posts that say not to close down long term credit cards. There is a lot of great information out there in regards to credit card debt, but also a lot of conflicting information.

I have no problem calling whatever college she might be interested in and explaining the situation. Embarassment is not a factor when it comes to her. My debt is a result of unemployment and then taking a substantial salary reduction (about 30k a year). My ex got hurt and stopped paying child support. I stupidly subsidized my income with credit cards thinking that this recession couldn't last forever. The hit to my income was so dramatic that it took a couple years to make the lifestyle adjustment. I also had and still have a huge monthly payment to a state college savings plan.

Basically what I hear you saying is that in order to negotiate anything with the credit card companies I have to let my cards get delinquent. I'm struggling with this - ethically I created this debt, and I can afford to pay it off, but more favorable terms would be helpful. My cards are at 18.99, 24.99 and 16.99. I'm making the minimums and at this rate it will take years to pay off. Does it do any good to try to work with the CC companies, or do I just stop paying, and bank the money so I can afford the settlement?

I appreciate the help. I have been doing a lot of research and trying to figure out the best way to go about this. I'd like to pay off a big chunk of this debt before my 2nd daughter starts college in 6 years.

What makes me angry is that I have good intentions, but the credit card companies make it impossible to carry them out. In order to negotiate, you have to behave badly. For example, I have NextCard with an 11,000 balance. NextCard shut down, so I've been faithfully paying on the card that I am not using. I had a 5.5% interest rate which they just jacked up to 18.99. Now only $50 of my $230 payment is going to principal, and I can't get anyone on the phone to talk about it. Never missed a payment, never been late, but I'm being punished.

Frustrating.

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There is a legitimate reason why people say not to close your card down, especially if you still have a balance as that will hurt your utilizations substantially. HOWEVER, if you strongly believe that they are going to close the account, it is better to beat them to the punch since "closed by consumer" is better than "closed by credit grantor". Again, only if you strongly believe that they are going to close the account down.

Settling is not for everyone. If you can afford to make the minimum payments now you may instead call and seek out hardship programs. Ask if they are going to show your account as "closed by consumer" or "closed by credit grantor". You of course want the former, not the latter. In order to qualify for their program you will need to provide information for them to determine if they should help you out. They may close your account down at this time but not report it.

It is possible that they won't allow you to receive better terms unless you go through a CCC type company. Most people here will advise against it. I think CCC type companies do have a place and can serve an important purpose. You just need to be extremely careful and research the companies thoroughly before you decide on one. Many of them are non-profit because any profit generated will simply go to the executives in the form of salaries. Some of these companies will use your first payment towards their "so-called" expenses (executive bonuses, no doubt). Most do not. Some will not get the first payment (and possibly even subsequent payments) to the creditors on time. Thus, you may get hit hard that first month by essentially making payments to both the creditors and CCC. If not, you could end up with late payments with them and then on your credit reports. Finally, even if special arrangements are made it is possible your creditors will report the account 30 days late each month. Just check with both the creditor and the CCC type company and make sure all of these serious concerns are addressed to your utmost satisfaction before proceeding further. The goal here is to get the best terms possible with lowest minimum payments and interest rates possible. Any extra money each month should go towards the card with the highest interest rate.

If and when you contact your creditors, do not be conservative in explaining the hardships you are having. In other words, use these hardships to your maximum advantage.

Again, using a home equity loan is not a bad idea necessarily if your present and future looks brighter than your past and what caused the problems in the first place will most likely not surface again. Just be very careful with this. If you go this route then add more to your payment each month, as much as you can afford. Best of luck to you!

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Here is a question for all of you experts out there. What if someone in a similar situation as Vderon does get a home equ loan to pay off his CCs. Then he/she sock-drawers or cuts up the CC without closing them. Then lets say he/she saves $200 month, but puts some or all of that to the principle of the new loan. His/hers score was 650 before, how much do you think the score will go up in 6 months. New mortgage TL being paid on time, credit limit/usage ration very low or zero (with limits very high, for my standards anyway), no late payments at all? Wouldn't that make the score close to 800???

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The higher you climb in scores - the harder they make it to go further up the ladder. Once you get into the 700s you really have to work harder for high 700's or even 800's. I do see them that high, but not too often, it takes in most cases having good finances to begin with, and a healthy mix of credit used, not many, but a right mix.

I would guess, that you could get to the 700's with no problem, - but you also have a down fall of new established credit, the scoring factors are still penalizing for age of accounts, mean you are inching up after 6 months, but what helps this part is accounts older then 20 / 30 years. And that is looking at the average age of all of your accounts. Because this is when payment history for that long of an account life - is really going to contribute to the scores.

Utilization will definitley help, keeping a balance revolving is good, less then 30% to keep it actively contributing.

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