Stop paying credit cards? Or keeping paying credit cards while my home is in foreclosure?

DebitFree

LoanSafe Member
Sep 16, 2012
34
0
6
I owe approximately $40,000.00 worth of credit card debt.20K is at 4.2%; interest, 12K is 10% interest and 8K is 12% interest. I have never been late or missed a credit card payment. My credit scores are around 550 because I have not paid my 1[SUP]st[/SUP] or 2[SUP]nd[/SUP] mortgage in 22months. Since I am not paying my mortgage I have the money to pay my creditcards, however lately I have been thinking I am throwing my money away. Once my home issue is resolved by either short sale or foreclosure I will have a hard time paying all the credit cards and affording a place to live.

Thoughts or suggestions?
Should I keep paying or stop paying and save the money for a credit card settlement in a year or so?

Any help from those who have been down this roadis greatly appreciated.

Also CH7 and CH13 are not options I can currently use.
 

TomEason

LoanSafe Guide
Jun 18, 2009
12,390
85
48
SF Bay Area CA
The rule in prioritizing what debts a debtor pays first are usually 1) keeping a roof over one's head including utilities 2) food 3) auto, unless one can get everywhere either walking or via public transportation. Unsecured debt like credit cards are far down on the list.
 

blackbox

LoanSafe Member
Sep 17, 2012
33
1
0
I too agree you should worry about you home and food on table WAY before the credit cards.
If you are truly having money issues and can not afford a home, even the credit card company will do a financial analysis and say they are not that important.
Bank of A, is who I owed A LOT of money. close to 50k. I Paided all my savings away, most of it any how, then I got to point that I said I can not keep doing this. I had no real job to make enough to pay for home, food and the utilities. So I stopped paying.
But heres where I did things I hope right. I called them and told them what I was doing and why. They will try to work out a lower payment or reduced amount for a while. BUT do NOT pay them one dime after you call. Save that money. They will call you every 2 weeks or so and ask if any thing has changed, be NICE and tell truth. I did this for over 6 months, then they offered a 40% settle ment. I begged my family to borrow the money and clear my name. NO go. Well I told B A this and they said OK. and They called for a few more months seeing if I could come up with it. I said nothing has changed, and if anything its getting worse. BA will try to scare you wit being sent to collections. Do not worry, nothing is farther from the truth.
9 months come and I get sent to a collection agency. They call, I was nice as always, they wanted to settle BAD at any amount.
I looked at what I had and what I could borrow from family It was 15 percent, that left me broke and penniless but freed me from owing that huge amount. Plus my credit jumped from 580 to about 650..
What I learned, CC companies have taken huge losses so you not their only case. They got it down to a science, just play along. Pay what you can honestly, but do not go hungry and keep a roof over your head.
Do not pay even 1 dollar between the time you stop paying and the day you get a settlement you can pay. Doing so starts every thing over. They will beg you to send at least 50 bucks to Keep it In house. Well I found out in house is the worse place to get a good offer. Collection agencies buy from CC companys bad debt at a silly low amount, like 1-5%. So if they get 6% back they are making a profit. CC already taken loss and got a tax break over you so they not out..
I wrote a lot and can get confusing some times. Ask any questions and I will tell you what i did.
 
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walkin

LoanSafe Member
May 1, 2012
361
6
18
Everyones situation is different, but if I were in your shoes, here is how I would handle it.

I would stop paying all of them immediately. When you eventually have to leave your house and pay rent, you wouldnt be able to pay on them anymore anyway.

They will ask why you can't pay. By the time they call and ask these questions, you will have already done your research, and you will most likely have a good story for them, that pretty much is inline with your financial hardship. Like a previous poster mentioned, they will try to "help" you, and beg for you to send in anything. Don't give them much information at all. If you do give them information, it doesn't have to be 100% truthful. Save up the payments that you aren't sending, and look to start settling 5-6 months later, or even after that if they don't ever offer a settlement you can afford.

There is a lot of good reading on debt settlement, youtube videos, etc. There are a lot of different strategies, some work, some don't. My personal belief is that if you default on multiple accounts at the same time, it might help. They will be pulling your credit. Once they see that there are other people out there who want your money too (other defaulted accounts), I would guess that they want to be first to settle, before the feeding frenzy, and you might be able to negotiate better settlements, and quicker. Don't EVER clue them in that bk is not an option for you. That is the one ace in the hole that you have, whether you really want ro use it or not. In fact, you should make yourself appear to be a walking bk ready to happen, without specifically threatening them with it. However, if you have already played that card, they will be able to see it when they pull your credit.

Like it has been said, food, transportation, utilities, and other essentials are more important than cc payments. Spend the next couple weeks researching this stuff, take lots of notes, and develop your plan.

Stay away from debt settlement or debt consolidation companies. I'm sure you can negotiate a better settlement than they can, since there are no "middleman" fees. However, it might be worth your time to talk with a credit counselor, and see what kind of interest rate reductions they normally get from each of your creditors, and also what kind of settlements they have seen. Thank them for their time. Now you know what CAN get done, and your goal would be to do better.

Also, I believe that good times to settle would be before you lose your house. The cc companies will try to scare you and tell you that you will have to pay taxes on the forgiven cc debt. My guess would be that if you have an upside down house, a lot of debt, and little assets, that you will have no problem claiming insolvency, and won't have to pay taxes on the forgiven debt. That's a whole nother subject though, but worth learning about as you begin your new journey.

Like I said, there is a lot of advice out there and different opinions and strategies. Since everyones unique situations are different, it is hard to guarantee what will work. The above blabbering is just my 2 shiny pieces of copper.

You will be ok. Good luck.
 
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TomEason

LoanSafe Guide
Jun 18, 2009
12,390
85
48
SF Bay Area CA
I owe approximately $40,000.00 worth of credit card debt.20K is at 4.2%; interest, 12K is 10% interest and 8K is 12% interest. I have never been late or missed a credit card payment. My credit scores are around 550 because I have not paid my 1[SUP]st[/SUP] or 2[SUP]nd[/SUP] mortgage in 22months. Since I am not paying my mortgage I have the money to pay my creditcards, however lately I have been thinking I am throwing my money away. Once my home issue is resolved by either short sale or foreclosure I will have a hard time paying all the credit cards and affording a place to live.

Thoughts or suggestions?
Should I keep paying or stop paying and save the money for a credit card settlement in a year or so?

Any help from those who have been down this roadis greatly appreciated.

Also CH7 and CH13 are not options I can currently use.
Hi DebitFree

Thanks for your post.

If I were in your situation I would completely stiff the two CC banks and never again speak or communicate with either of them.

If at all possible, I would submit a loan mod app on the 1st. If the 2nd is underwater, I would forget about them until after the first is handled. The last thing I'd do is throw more money down the CC rat hole!

Good luck!
 
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JustSharon

LoanSafe Member
Sep 8, 2011
184
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Walkin:

Very nicely explained advice. Especially like the part about "implying" that you are "considering" bk -- without actually threatening them. How about saying "well, I don't really want to file bankruptcy if I find another way to take care of this." Ahem.
 

walkin

LoanSafe Member
May 1, 2012
361
6
18
I think there are probably a few ways to let them know that you are a ch 7 candidate without coming out and saying it, but I'm not real sure. If you can drop enough hints, and the credit reports support it, it might work to your advantage. If you blatantly threaten them with it, it will be less credible. Not sure, never done that before. But for sure, take all those facebook pictures off that show your airplanes, cigarette boats, corvettes, porsches, and rv's...lol. Better yet, close your fb account while going through this mess, because certainly one of your 10,000 friends and friends of friends works for the very bank that you are stiffing...eek. Haha, I don't have any of that stuff, wish I did, but if so, I surely wouldn't want that crap to show up on the first page of google when I type my name in.

TE had some good advice too. I didn't even think about the house part, doh. I guess I just kinda assumed that the op was moving anyway, or something.
If theres a chance or need to save the house, a loan mod request should be a priority, if for no other reason than to extend your stay.
 

DebitFree

LoanSafe Member
Sep 16, 2012
34
0
6
Thanks everyone for your support. I have been lurking on this forum for almost 2 years now and finally decided to take the jump and share some experiences and ask some questions. The knowledge I have gained on this forum has been tremendous and it is sort of like debt therapy for me, knowing that others are in the same boat as me and coming up with a strategic plan.

It seems unanimous that I should stop paying my credit cards from the posts above. I have been leaning hard toward this for some time but scared to take the jump. I guess it takes courage to make a change to free one’s self from the debt. I could careless about defaulting on Bank of America and First National Bank both which have Interest rates over 10 percent. But I actually feel bad about defaulting on Capital One since my rate has been fixed at 4.2 percent for over 7 years now; I have been a card holder with them since 1998. Would it make any sense to stop paying my other two and keep paying Capital One? Or is this an all or nothing game where once Capital One sees I’m not paying my other credit cards they will shoot my interest to something crazy like 29 percent?

Concerning the house and the loan mod programs for 1st and 2nd Mortgages, I posted an extremely detailed post on my dealings with both banks from beginning to currently. Long story short denied modifications numerous times with both banks, kept trying and was successful in getting in to the trial payment phase with Wells Fargo, my 1st mortgage, made 5 months of trial payments on time and was kicked out of the program because when it came time to finalize the mod, my second mortgage refused to sign the subordinate agreement unless I paid them all back due payments for 20 months or paid the loan in full. After that I was kicked out of all programs from Wells Fargo and they filed for foreclosure the beginning of this month. If you want to see the entire post it is located here: http://www.loansafe.org/forum/stop-foreclosure-tell-us-your-story/50890-foreclosure-hamp-loan-modification-program-second-mortgage-charge-off-timeline.html
 

walkin

LoanSafe Member
May 1, 2012
361
6
18
You'll probably get mixed opinions on that one. Some would say stiff them all, if you are jumping, jump all the way, lol. Some might say that Crap 1 is one of the sue happy creditors, so just know what you are getting into. Not sure about the other two.

Here is an option. Might be bad advice, its just an idea. If the fact is that you can't file bk, or won't file bk, and won't be able to handle a lawsuit, and aren't judgment proof...maybe you can try a hybrid stiff. I'll probably get flamed for this, just trying to think rationally.

I may have learned some of it from other people, not sure.

Stop paying on everything. Answer the phone the first time they call, and give them your hardship. After that, ignore their calls and only answer once a month. What you tell them is that nothing has changes. Settlement offers probably won't even start until 60-90 days late. The offers will be high, like 50-80%. You probably know the rest. Some people just stop paying and never answer the phone. Some people send a cease and desist immediately, lol. IMO, not a smart move. Might work for some, but I've also read about people being slapped with lawsuits at 60 days late, who took this approach. IMO, if the banks think they are being stiffed for no reason, and youve not told your story to them, they will accelerate your account for legal review. If this is a challenge you can deal with, by all means take that approach. Most people who have found themselves in these situation, IMO, are low hanging fruit, and don't have the knowledge or time to be able to defend themselves when they are sued. Moving on...

Seems that the goal would be to settle with sue happy creditors first, especially if they are high balance, then move on to highest balance cards next, and so on. Understanding that the best settlements come late in the game, 5-6 months, you might want to be ready to settle at least 2 of the cards around that time, prioritizing the most dangerous ones. Here is where it will be decision time...lets say you can't settle all 3 before chargeoff. You can do one of two things. 1. Let the 3rd card chargeoff and hope for a better settlement later on with that card. Or 2. Balk at your stiff, and see what kind of workout or payment plan they can offer to catch you up or keep it from charging off. This isn't preferred, but something to think about if you have no other protections available. It is a little bit different for folks who are jugment proof, and who have a bk card they are ready to play.

Another option would be to stagger your walks. Do one at a time, or start with just 2. The goal would be to settle the 2 highest balance cards, and figure out the small one later. You'll need to figure out how much money you can save in 6 months, and figure that you can settle for an approximate average of 35%. I promise you that if you stiff a lower balance card, and stay loyal to a higher balance card, that lower balance card will most likely be aggressive with their collection efforts. They will see it on your credit reports.

Some people get lucky and just stiff everyone, and wait until well after charge off to settle for real cheap. Its a gamble. Know the risks, your tolerance, and have a plan b.

Another bit of friendly advice. Avoid posting specific dollar amounts, interest rates, and bank names on public forums...especially when you are discussing strategies. I don't doubt that some of these banks pay some internet guru $15/hr to browse the web, and report back if they find a potential walker. Nothing worse in the world to do than to show your hand when there is a lot of money on the table.

Also, keep your bank account balances low. I've heard, but can't confirm, that creditors have some systems in place where they can get an accurate picture of how much money is in your accounts. If you have $20k in your checking account, and they find out, I doubt they will be in a hurry to settle with you for cheap. It might behoove you to change banks, if you have paid those cc bills with your current bank account. I think it is illegal for them to take an unauthorized ACH payment from your account, but I'd rather be safe than sorry. If you do any banking with creditors who you are stiffing, change banks asap. I'm working on settling about $100k of debt in the next few months. Hoping for 15-20% overall settlement costs. Unfortunately I'm broke as a joke, so I'll have to take a loan from retirement in order to become debt free. If it falls through, I'll just sit tight and wait for them to pull the trigger, so I can pull my bigger trigger, lol.
 

walkin

LoanSafe Member
May 1, 2012
361
6
18
Oh, and as far as your concerns about a card that you are paying on time raising your interest rates because they see what you are up to, won't happen.

Credit limit might get chopped of they see you are defaulting other accounts, but they can't raise the interest rates on your current balance. They could send you a letter saying they are raising your interest rate for new purchases, and you can decline or opt out. They will close your account. But, your existing balance will be kept at your current interest rate.

You aren't the only one scared about this, most of us were in the beginning, or still are. Some are professionals at this stuff, lol. My take is, whats the worse that can happen? Worse case scenario, life will be great, 7 years from now, and I'll be debt free to boot! Best case scenario, life will be great soon, my credit will be trashed, but I won't be a slave to debt anymore. Its win win for me, get this crap knocked out so I can move on with my life while I still
have energy. IMO, when the banks stiffed you and didn't want to help you on your single largest investment, that would be time to return them the favor. They got their bailout, and we are paying for it. Its unfortunate that we have to create our own bailout, but welcome to "hope and change"....make changes in your life and hope it works, lol.
 

DebitFree

LoanSafe Member
Sep 16, 2012
34
0
6
Walkin, thank you very much for these two detailed posts and advice on my situation.

No worries on the high balance in my bank account, I typically always have only a few hundred in my account each month after paying bills. Also I have no loans or credit cards thru my bank where I keep my checking account, so I should be good on that too. But thanks for the warning on that, as I could see if it was the same bank they could get sneaky and they would obviously have full access to view your account to determine what you are really up to.

I will keep everyone updated on my decision to jump and will let everyone know if I jump on all 3 at once or stagger the jumps as suggested above.

Thanks again!!!
 

walkin

LoanSafe Member
May 1, 2012
361
6
18
Good luck my friend, I wish the best for you and your family. You will do just fine.

My advice isn't always right, so continue with your research. I'm only a few months ahead of you, and have learned and experienced a lot. Before I jumped off the cliff, I never even knew that you were allowed to not pay your bills....lol, there's a testament to how naive I was, earlier this year. I will post my specifics in a couple months, and hope that it helps other members. This can be a game of 52 card pick up, or a game of texas holdem poker.....your decision, and to win, you will need either completely ngaf, or spend time researching things until you are beyond exhausted....at least that's how I roll.
 

DebitFree

LoanSafe Member
Sep 16, 2012
34
0
6
I wanted to reach out and give a HUGE thank you to this forum and all involved. I just settled 2 out of the 3 credit cards I had outstanding balances on. I basically just followed the advice on this forum and it worked like clockwork.


Bank of America owed $7,000 settled for 26 percent


First National Bank of Omaha owed $10,000 settled for 25 percent


Capital One owe $22,000 still working on a settlement


Thanks again!!!!
 

walkin

LoanSafe Member
May 1, 2012
361
6
18
That's great news DebitFree, congratulations! Good luck with crap1!
 

Suzy Sunshine

LoanSafe Member
Jan 17, 2013
18
0
0
Glad to here you were able to get some of these taken care of.


I was able to get about the same with BofA. Still working on Cap One. It's been Charged Off and with their pre-legal dept for a couple of months. Do you here much from them? Anybody else been able to settle with Cap One recently?
 

scaredinoh

LoanSafe Member
Jun 3, 2013
8
0
1
DebitFree,
Great to hear this!

What percentage of each of the settled balance would you say was the original balance (i.e. minus fees, late charges, interest charges, attorney fess, etc.)
 

wasyounganddumb

LoanSafe Member
Jun 6, 2013
2
0
0
I think I have read through all of these, and I have a few questions. General background- I have 11 cards with a total balance of $55k. I am thinking about paying off 2 that were our first credit cards 12 years ago, about $3500. I am just concerned if we stop paying our other ones, these two will lower our credit limit or close anyway. My other cards are not through either of these companies. I have another card that was just opened a couple months ago that I was also thinking about paying because it is so new and I think they may be more likely to sue-$2k. So should I try to pay off a few and let the others go or let them all go?

If I settle, what do I ask them to report on my credit report? I know I need it in writing, but once I have that, how do I pay- debit card, personal check, cashier's check? I pay everything now through my bank's online bill pay. Is that an issue, do I need to completly change banks now?
 

TomEason

LoanSafe Guide
Jun 18, 2009
12,390
85
48
SF Bay Area CA
I think I have read through all of these, and I have a few questions. General background- I have 11 cards with a total balance of $55k. I am thinking about paying off 2 that were our first credit cards 12 years ago, about $3500. I am just concerned if we stop paying our other ones, these two will lower our credit limit or close anyway. My other cards are not through either of these companies. I have another card that was just opened a couple months ago that I was also thinking about paying because it is so new and I think they may be more likely to sue-$2k. So should I try to pay off a few and let the others go or let them all go? If I settle, what do I ask them to report on my credit report? I know I need it in writing, but once I have that, how do I pay- debit card, personal check, cashier's check? I pay everything now through my bank's online bill pay. Is that an issue, do I need to completly change banks now?
Thanks for your post. There are no banks who will engage in credit bargaining. It can't hurt to ask but the bank(s) will undoubtedly decline your demand/request. If it were me, I'd stiff them all - I call it the "scorched earth policy." If you feel you must pay something to settle, if it were me, I definitely would not pay off any of the credit cards with your bank's online bill pay service. Instead you might pay with a cashier's check (which they will likely demand anyhow).
 
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davephx

LoanSafe Member
Jul 21, 2009
5,435
47
48
If you wanted to really scorch the earth - if you can get cash advances take all that you can up to your credit limit or close to have as much cash to settle or pay a reduced pay plan for as long as possible.

As soon as you get behind much on one - once reported to credit bureau it is likely the others will reduce you credit lines if still available. Then when you are past due on all most will have hardship plans at reduced payments maybe 0% interest but have a better bargaining position as they get closer to 180 days delinquent since that is when banks have to "write off" - which just means include in provision for bad debt losses etc - you still owe the debt unless sent a 1099C but that won't typically happen for a few years or they may sue you - or sell to a third party junk debt buyer.

Be sure you do not have any checking or savings accounts with any banks you go delinquent on (right of offset) . If down the line if anyone might get a judgment be sure you change bank accounts vs when paid them since they will have a record of you bank info. This is not an issue until they get a judgment.

If you wish to keep some current I believe best for credit reporting purposes to keep older vs newer current but not sure. Long good credit history with one may not be offset as much by delinquency on newer ones.
 

bankwhipped

LoanSafe Member
Apr 11, 2011
161
8
18
Florida
Glad to here you were able to get some of these taken care of.


I was able to get about the same with BofA. Still working on Cap One. It's been Charged Off and with their pre-legal dept for a couple of months. Do you here much from them? Anybody else been able to settle with Cap One recently?
Be careful with Cap One, they are probably the worst and they do sue. Once they sue they supposedly will only settle for 80 percent (according to their attorney) to drop suit.

I had to default on all my creditors due to the economic meltdown, Cap One is the only one suing me and doesn't look like it will be settled favorably.