I must tell you about a discovery call session I had with a client. Let's call him “Mike.”
While evaluating options for his situation, we considered three possible solutions. Here is a quick overview.
- He has over $51,000 in credit card debt.
- He has other unsecured loans totaling $15,000.
- Even though he hasn’t been late on his bills yet, he is having a difficult time getting caught up and doesn’t think he will ever dig himself out of this enormous amount of debt.
- When he put his debt into a debt reduction calculator, it gave him 22 years as an approximate amount of time to pay everything off at his current pace.
(Wow. At this point, Mike is overwhelmed, and I could hear it in his voice.)
During our chat, I explained his three options:
Option #1 – Continue to pay the bills for 22 years. (Sad Face).
Option #2 – File for Bankruptcy (Ouch).
Option #3 – Negotiate ALL his debt with each creditor.
Let’s check it out:
Option #1 – Continue to pay. I must tell you that Mike did communicate with each credit card company and was successful at reducing his rates. The obstacle is that, by executing their plan, he will be paying for approximately 22 years.
That is like being held hostage by your credit card company for 22 years. I say “held hostage” because I believe that. Plus, this amount of debt will hurt your credit scores.
Yes, I know he took out the debt, but to pay $51,000 in credit card debt for 22 years is a little crazy, and I thought it was important to look at other options.
Option #2 –The big "B," Bankruptcy. If he qualifies for a Chapter 7 bankruptcy, he will have no more debt (YES). However, the bankruptcy will stay on his credit report for ten years.
He can quickly repair his credit (to 700+) after the bankruptcy, which can be done in 1 ½ to 2 years.
There are two crucial downsides to this option:
The bankruptcy blemishes his credit report. That will impact his ability to borrow MONEY for the next 2-3 years.
Does he even qualify for a Chapter 7 Bankruptcy? Believe it or not, many people cannot qualify for bankruptcy because their income is too high.
If this is the case, he will have to file Chapter 13 Bankruptcy. That means he will have to repay all his debt plus have a bankruptcy on his credit report. (Sad Face).
Let’s move on to Option #3.
Option #3 – Renegotiate all his credit card debt with each credit card company.
Here is what I know without a shadow of doubt:
- Your credit card company will not negotiate with you unless you stop paying your bills. They may tell you differently, but this is what I know to be true.
- Your credit card company will lie to you, so you continue to pay. I’m sure this is not their “policy”; however, when you combine eager employees looking to get their bonus with vulnerable debtors, this happens.
- Once they have deemed your account to be delinquent, they will put your phone number into an autodialer system, which means that you will get up to eight calls per day trying to collect payment. Ouch!
- If you understand how to negotiate with your credit card company (and I don’t), you may gain a settlement. I have heard from numerous clients that companies will offer a settlement of somewhere between 15% and 40%.
This means, if this gentleman did it right, he would pay off his credit card debt for a sum of between $7,950 and $21,200.
You read that correctly; he would pay off $51,000 in debt for between $7,950 and $21,200.
After you pay off your debt, your credit score increases; our clients are getting back to a 700+ credit score in approximately 18-24 months. (Yes, Baby!)
The biggest problem with Option #3 is having the stomach to handle the negotiations… because it is very stressful, overwhelming and daunting. Also, if you don’t know the proper way to negotiate, you will pay even MORE than you should.
If this sounds like your situation, LET'S talk about it and evaluate your options.
Remember this: Every problem has a solution! #AskTani.