$40K CC Debt, How to help?

The best way to help them would be to take all their credit cards except one - and cut them up. Once the cards are cut up then they will have no trouble "catching up" on their payments. But if they continue to use the cards they will never catch up.

Good luck.

 

They still may never catch up if they only make minimum payments.

First, they need to make a budget. See what they can cut out (cable TV, magazine subscriptions, etc). They may find that they're going to have to find a way to get some extra income for a time (a part time job at 7-11 if nothing else). If they eat out a lot, they need to start eating at home more often. Go to less movies. Don't go on vacation for a few years and use that money towards debt. You get the idea. The goal here is to free up as much money as possible to pay on these accounts.

Take ALL of their accounts and make a spreadsheet. You want to put the account name (however you identify it so you know what it means--could be Mom's Visa and Dad's Visa. This is just so you can keep track). The next columns should be balance, interest rate, minimum payment and current payment. If they have an overlimit problem, you might want to include the credit limit as well.

The balance, interest rate and minimum payment you can get from the statements. The current payment they'll have to tell you--it should be what they're paying each month.

Add up the minimum payments. Can they handle this each month, in addition to other necessary items? Assume they're now paying cash for everything. Put the cards away somewhere. Then identify how much extra they can afford each month.

Now I think you may be ready to call the creditors and see if you can make some sort of deal. Tell them you're looking at the situation, and want to do the right thing and pay off the debts. But if something doesn't give, they'll have to file bankruptcy. One thing you could ask for (it may not work, I'm just reaching here) is if they would increase the credit limit to what they have as a balance now, so that there are no more late fees. The card is still going to be maxed, so they can't use it.

The normal way to get the debt paid off is to pay minimums on everything except the HIGHEST INTEREST RATE. Pay as much extra as you can on that. Track your progress every month on your spreadsheet. You don't want to pay off small balances so it "feels good" or something like that. Get the gratification from the decrease in balances on the spreadsheet.

Check the rates every month. Resort by rates every month, and pay the extra to whichever is highest that month. When the highest rate account is paid off, take the extra PLUS the minimum on the card that was paid off, and that becomes your extra amount.

For example, if you were paying $200 extra a month on account A, and the minimum for account A was $100, you would actually have been paying $300 on that account (the minimum plus $100). That $100 is no longer a required payment, so it's added to the extra amount you have. Now you're paying $300 EXTRA on the next account. So if its minimum payment is $75, you'll be paying $375 each month on it.

The balances will decrease, and it will take less time than you think. It doesn't look that way at first, but as you keep adding on to the payment, the more you will pay off each month.

I got stuck with almost $77K of debt in a divorce and when I came to the realization that I had to do something, I started this system. It's worked very well.

 

Two other items to add to the above.

ALL additional funds that come into the house (tax refunds, bonus at work, gifts, settlements of lawsuits, etc) go on to the bills. Make an extra payment of that amount on the highest interest rate account.

The problem is overlimit fees. You need to get everything below the limit before you do this process, or overlimit fees will kill you. I'm not sure how to handle that one, I guess put all the extra on the overlimit cards first until you get them all under limit, then proceed as above.

 

I don't think that is the problem here. He said that the balances are twice the limits right now because of all the late fees, etc. There's no way they could charge anything new on a card that's way above it's limit.

I think they really need to get into a program to reduce or eliminate the late fees and finance charges. I don't have any experience with any of the CCCS programs and they seem to get mixed reviews here, but I think something like that is definitely worth looking into. Theoretically they should be able to stop the late fees and reduce the interest rates on these accounts so the money your parents are able to pay will go toward reducing the balance... instead of paying the bank's fees.

Also, a number of credit card companies have programs for people who are in over their heads to help reduce the interest and/or eliminate the fees, but that's something that you or they would need to negotiate with each company. Additionally, as strange as this sounds, they might not be willing to set up such a program until your parents are two or three months behind. If this really is an avenue you want to explore I would suggest talking to each credit card company and seeing what they will offer. If you can't get anywhere, then don't send any payments for two or three months (be careful not to let it get charged off, though) and then call and see if they'll set your parents up with a program.

Finally, they could simply stop paying everyone and let the accounts get charged off, then come back with a settlement offer a few months later. Frankly, I believe in paying what you owe, but ethically I don't have a problem with this because half or maybe even more of what they owe right now is probably the late fees and over limit fees... not to mention all the payments they've already made that haven't reduced the balances. In any case, if your parents do chose this option there are a few things to be aware of...

First, they'll be getting a lot more calls from creditors... they'll probably have to get caller ID and start screening their calls (if they aren't already). Having charge offs on their credit report will definitely lower the score (however it's already quite low, I imagine) so they should be certain that they won't need credit for anything in the reasonably near future... new car, new home, etc. Also, they should be saving as much money as they can during the period of not paying anyone. The reason for this is that almost always a condition of a settlement is that it's paid in full right away. Ocasionally a creditor will let you make two or three payments on a settlement, but usually it needs to be paid in full within a month. They'll need all the money they can get to start paying off the creditors when it comes time to make the settlements.

When they do start making the settlements one of the things they should try to negotiate into the agreement is that when they make their payments the creditors will remove all the negative info from your parent's credit reports. Most likely many of the companies will refuse, but some may do this and it will make the job of cleaning up their credit reports when this is all done that much easier.

The only other option is to stop paying everyone, let it go to collections, then ask the CA's to validate. Your parents may be able to get out of some or all of the debts if the CA's are unable to validate. However, this will take much more time and be a much harder fight. Also, their credit reports are likely to be in much worse shape after this. Additionally, there are moral and ethical questions to this method as they are trying to get out of paying debts that they do owe.

HTH,
Brett

 

Your best bet may be a combination of what Brett and I have said. Maybe not paying for a few months will get them into a program that will help get the fees eliminated. Make minimum payments on all accounts as agreed to (maybe even have them debited from checking account so there are no more lates). Then any amounts over the minimums that have been set up go to pay off highest interest rate first.

Getting rid of all the fees was the problem I had, maybe this is the way to deal with it.

 

I think that there are very few, if any, credit card companies that will negotiate a settlement when you are current or nearly current on the account. Again, as strange as it sounds, the best way to get to talk to someone who would be willing to negotiate a settlement would be to stop paying on the card for several months. I think a settlement would be likely to happen for you, but like I said before, the problem is that the banks will want the payment in full when you agree to the settlement. It sounds like your parents may not be able to come up with ~$20,000 right now to settle everything.

I think settling might be a good idea here, but again, be aware that it will likely look worse on their credit reports and be more difficult to remove. Again, if they do settle they'll need to come up with the money to settle with. I don't think there are any companies out there who will let you settle for half of what's owed and then pay it off at $100 a month.

HTH,
Brett

 

I find it amazing that any bank would allow the account to continue while piling on overlimit/late fees. Not that they're not capable of it, but I suspect that an objective third party reviewing the EXCESSIVE and EXTENDED fees might say they're dischargeable.

It's really hard to offer solid suggestions without more info. You say your parents can't do a BK but it sounds like they've got severe cash flow/credit handling problems.

It's possible a decent CCC service could knock down balances and get favorable payment schedules. But something sounds very out of kilter here.

 

It certainly can't hurt to ask for a settlement. If they've been having problems that long, perhaps some will settle. It varies by company what they'll do. Explain to them that you'd like to pay something rather than declare bankruptcy.

If you do negotiate something, get it in writing. And make sure it states if there's a time limit (for example, they won't charge any interest or overlimit fees for six months or whatever you agree to). Talk to a manager. Make sure they are authorized to make these agreements.

You may negotiate a partial settlement. For example, the limit on the card is $3K, balance is $5K. Maybe you'll pay $1000 and they reduce the balance to $2500 (in other words, they write off $1500 in addition to the $1000 you pay). That gets that card below the limit.

I don't have a clue if they'll do something like that, but I don't think it would hurt to ask. Or maybe you'll pay so much lump sum and so much a month until paid, they don't charge more overlimit fees and lower the rate. Be creative. Get someone high enough up and ask what they can negotiate to keep your parents from filing bankruptcy.

I see that you said they went to one of the debt relief programs. One reason I didn't suggest that is not only that they get mixed reviews, but most of them charge a fee. If you can negotiate something on your own, they can take the money they'd pay for fees and use it to pay debt.

I looked into one of those programs, and they wanted several hundred dollars up front, then so much a month. I remember thinking to myself that if I had that much money to pay them, I wouldn't have so many debts, I'd be using that to pay them off. And if I had the money to pay them, I would have had the money to at least pay minimums on the bills.

 

DanS,

Don't find it amazing. It's normal operations. They're making a bundle off of these people, and legally, too. I'm sure the terms of the account clearly stated that there would be a charge of $35 (or whatever) for every month it's over the limit. And probably the same fee for being even a day late.

That's what happens to a lot of people, especially if they have a card close to the limit. They are late by a day or two. The late fee gets added. That takes them over the limit. So now they get an overlimit fee added. And of course all of this is added to the balance, so the next month they're paying interest on these fees. And it becomes a vicious cycle.

This is what starts the problems for a lot of people. Maybe they lost a job or got sick, missed a payment, but when all the fees start, it just gets worse and worse.

 

Have they thought of CCCS....
If they don't qualify (which it sounds like they would) they can at least sit down with them and get a budget set up. Cutting out those extras can really add up!!!

Look at www.nfcc.org

 

But REMEMBER any amount forgiven in this type of settlement is taxed.

Therefore the 1500 or whatever they don't have to pay is put on a 1099, mailed to them and they are required to report it to the IRS as income and pay TAXES on it.

 

In theory that's true, I don't know if all of the creditors do that or not.