 When
to turn down debt-settlement offer
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 Dear
Debt Adviser,
I am 32 years old and have some old debts from credit cards I took
shortly after college. I have tried several payment plans, but life
always gets in the way and I end up back at square one. Two of the
credit cards are with the same company and the third is in collections.
The company that I have two cards with has offered me an "out,"
saying that they will accept 60 percent of what's owed, provided
that amount is paid over three months. How will this option affect
my already mediocre credit? Will making regular payments over a
longer period be a better option? Now that my finances are in order,
I would like to start excising the debt demon but need a starting
point. Thanks.
-- N.L.
 Dear
N.L.,
Excising demons is a tricky business. Debt demons are no exception.
If you don't do it right, you'll be haunted for years! Three cards
and two companies should be a manageable task. If you had more creditors
I'd consider sending you to a credit counselor. But at 32, you should
be able to do this on your own.
If your finances are now in order as you say, don't
settle. The effect on your credit score and report will be substantial
and you will also probably have to pay
income taxes on the 40 percent that is forgiven in the bargain.
Your credit report will reflect the settlement for the next seven
years. Too many people overlook the consequences of an unnecessarily negative
credit report.
For instance, in the next seven years, is there any chance you
will:
- Look for a new job?
- Move to another apartment?
- Buy a home or car?
- Buy insurance?
- Get married?
If the answer is "yes" to any of these questions, your
credit history can come into play.
Many employers review credit reports as part of the
hiring or promotion process. Competing with others is tough. With
a history of not being able to meet your obligations (as in unreliable
or out of control), you will be at a disadvantage. Chances are no
one will ask you why, they'll just go on to the next candidate.
Employers can't get sued for not asking questions. The same applies
to renting an apartment. Will you pay the rent or 'settle' with
the landlord? Who needs tenants like that? Buying a house, car or
big-ticket item will cost you more and require a bigger down payment.
Insurers love numbers and love it even more when you give them a
reason to charge higher rates. And finally, my experience is that
desirable partners want other partners who do what they promise,
work hard to meet obligations and don't come with bad credit for
a wedding present. How will he or she know? If they read my book
"Credit Repair Kit for Dummies" that just came out, they
see that financial issues are the leading cause of divorce and showing
each other your credit reports makes good premarital sense.
Making regular payments to all three cards with a
plan to pay them in full, in a set amount of time, is your best
option if you can get
the creditors to agree with you. To keep life from getting in
the way, you will need a plan.
Whatever you come up with, be sure you can stick with it. Track
your expenses and see where your money is going. Cut out any extras
that you can and try to set aside a little in savings each pay period.
Starting an emergency
savings fund is the No. 1 thing that will help when life happens
again.
Good luck!
The Debt Adviser, Steve Bucci, is the president
of Money Management International Financial Education Foundation
and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt
advice or click
here to ask a debt question.
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