Please consider the following hypothetical situation. A certain person is barely making minimum payments on his/her credit cards. He has 15 cards with a balance of 2000 dollars each. In addition, he has no savings and no assets. He is a prime candidate for bankruptcy.
Now, suppose he does not want to go bankrupt. So, he stops paying on all the cards. He lets cash build up in his checking account. When the account reaches 1000 dollars he calls up the first credit card company and offers to settle 50 cents on the dollar. If they agree he pays off the card. If they do not agree, then he calls up the second card and makes them the same offer. I am thinking that this person will be able to settle most cards for 50 cents on the dollar. If the plan back fires, he can always file bankruptcy. What do you think of this idea?
Try calling the card companies to see if they can help. Others have done this and gotten interest knocked down for a short time but it can take several calls each. Read past posts for more info. Also, Dave Ramsey includes a pro rata plan in some of his books. I’m not going to suggest you find another job because in this economy that isn’t so easy.
But if you save up the money talk with the company and make the offer. Be sure to explain that their choices are limited: get some money or the person goes bankrupt and the credit card company gets nothing. Some companies will accept getting something rather than nothing but others will refuse to accept less than the full amount.
Also keep in mind, depending on how long it takes to save up $1000 each to try to pay off each card, some of them may sue you before you get around to them. Some cards are known for sueing pretty quick. They can look at your credit report and see that you are paying others (by settling). Thats actually why many people end of filing bk, because they get sued by thier credit card companies.
Just something to keep in mind also is depending on the card but most will sell your debt to a collection agency at 4-6 months of no payments so at that point you would no longer be dealing with the banks but CAs. Some are known to sue by the 6th month or before. Also keep in mind that interest, late fees, over the limit fees etc will continue to accumulate so a 2000 debt could turn into a 4000 debt a year down the road.
One suggestion is something that worked very recently for me (and may have for other people as well). I was overlimit on a card that had a 29% interest rate. Late fees and overlimit fees were $600 on the $2000 I already owed. I paid $100-200 a month, but was still overlimit so the fees outstripped what I could pay. I just wanted to get down below my limit so I could make regular manageable payments again, but I could not get the CC company to stop the fees each month so that I had a chance to catch up.
Then I went to a debt counseling service (Consumer Credit Counseling in my area – LINK) and talked about a getting on a plan … I decided against doing that however. I decided to keep trying on my own. So I called the CC company back and told them … and these apparently were “magic words” for me … that I was considering going on a debt management plan. The very next thing I knew, the CC company put me on a plan — with all fees suspended and at a reduced interest rate! — allowing me to pay over four months until I got back under my limit.
I then went to two other of my CC’s and told them I was considering a debt management plan, and they too put me on their own plan at a reduced interest rate until I could get to a manageable place with the debt I owed them. I hope my experience is helpful. I would say this person is taking a big chance with wage garnishment etc. Anything. You are ‘assuming’ the ccard companies will deal at .50 on the dollar in the first place. They may not deal at all. Once they turn it to collection also it might be out of their hands as well. The one thing Bankruptcy affords you is protection- once you file you are protected, they cant take any further action against you. Also this whole ‘idea’ of letting ‘cash build up’ in his checking account. Wrong. They can seize that. If one of those cards decides to actively pursue him and seek a judgement he can kiss that checking account goodbye probably. I was just recently told by my bank manager at Washington Mutual right before Chase took them over that you cant even have bank accounts in ‘secret’ anymore. Meaning your creditors can just put out there your social sec. # and a request and no matter how many bank accounts you have that you thought ‘they’ did’nt know about, it does’nt matter the banks are now all obligated to honor the request and give up your info. So if you have a bank account in this country you are at risk. You cant hide it. If you owe them and they can get a judgement they can take what you have in those accounts.