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Settling for reduced amount on closed account


clancaster23
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I had a Synchrony card that I had a high balance on but it was never over the limit.  Synchrony suddenly closed the card for no reason other than I guess because I wasn't using it.  Eventually with all the fees and a missed payment or two the card got over the limit.  They now offer me a lump sum payment to pay off the card, about 60% of the balance due.  I read that this is not really a good thing to do because it leaves a mark on your report that you settled for an amount less than the full balance.  What should I do with this card so it doesn't hurt my credit worse?  I can pay the overdue amount now but that leaves me with a monthly payment which I do not want.  I cannot pay the full balance now either.  Let it go into collections?  What should I do?

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One thing you really need to do is figure out what your goals are.

You have several options.  The less expensive options are worse for your credit, but less expensive.

1. You can pay the amount in arrears and make the monthly payments until the balance is zero.  This is by far the most expensive option, but is the least bad for your credit rating.    If you can't afford to do this, you can't afford to do this.

2. Settle.  This does not necessarily mean paying off 60%.  That is pretty high for a settlement.  This option is cheaper than option #1, but if you don't have the money up front you can't do it.  Simple as that.  It is worse for your credit than option #1, but not TOO bad.  If you need a mortgage or car loan a few years down the pike, at least you won't have any outstanding debt.

3.  Let this go to default.  If they sue, you can probably beat them using arbitration, so at most it costs a few hundred dollars.  This is the cheapest strategy, but will hurt your credit rating for the next 7.5 years.  If may be very hard to buy or refi a house during that time.  Nor is this a sure thing.  With a bad judge, you could get a judgment against you.  

 

I don't know why they want that high a settlement.  If you can afford a lower offer, make the offer and see if they go along with it.  

 

4. In SOME situations you can enter into a hardship agreement, under which you pay a lower monthly payment.  That will often be a lower monthly interest as well.  If you can get that sort of situation, that might be your best bet.  It is cheaper than #1, and the monthly payments would be affordable.  

 

The problem is, many places simply won't let you enter into a hardship agreement, or else the hardship is only for a year or so.  If that is the case, you are stuck with options 1,2 and 3

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Whocares - Yes, I am behind on the payments for this card and thanks to them piling on late charges it is currently over limit as well by $66.  It's a $1,000 limit card.

 

Backfromthedebt - We are planning to start looking into buying a house in the next 3-4 years so I have that much time to get my credit in the best shape as possible by then.  That's why I wondering how bad it was for the score to have that note of taking a settlement would be and if it's even worth it.

1.  I would do this if it weren't for still having a monthly payment but I realize it's probably the best option.  Problem is as long as I owe on this, if I made minimum payment (which is likely since I'm on a very tight budget) half of it goes towards interest and it would be about three years before I paid it off.  I want to avoid all of this.

2.  I can do the 60% settlement now but how does that look on the report in 3-4 years and how will it effect my score?

3.  Do not want to let it go this route.  As I said, we plan to buy a house in 3-4 years and it needs to be as good as I can get it by then.

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Your credit has already been dinged from the late and missed payments.  
 

I honestly don’t know what effect this will have on your credit 3-4 years from now.  Time heals credit wounds, but not in the same way as before.  
 

There are some places that claim to be able to predict what effect certain items will have on your credit rating, but those predictions are not always accurate.  
 

The main thing is to get any money owed off your credit reports.  Settlement would hurt more than paying the account off, but would wipe out the balance. 
 

Also, unless you are insolvent, you will have to pay taxes on the money forgiven in the settlement.  The exception is if you owe more than your assets. 
 

These are things to consider. 

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