I am trying to work Dave Ramsey’s program, and am presently using the debt snowball. (Read here if you do not know what I am talking about)
One creditor has offered me a payment settlement of about 60% of what I owe. I would pay it off in 3 months. My question is: what does accepting a settlement for less than I owe do to my FICO score?
While I aim to get debt free eventually so I can ignore the “I love debt” score, right now I have to care about that score because I desperately need to refinance my mortgage as soon as possible.
I also know that a successfully completed settlement plan would be better for my score than if I were to hold on to the debt and risk more late payments. But I’d still like to know what relative effect accepting a debt settlement from a creditor would have on my FICO score.
Many thanks! This blog has been a saving grace!
I think you agree to the settlement (in writing) with the clause that they will report this as “paid in full / paid as agreed” on your credit. You need that in writing with their signature as well.
Sample of something I have sent: “If I make a lump sum payment of $360 by June 30, 2008, you will release all claims against me arising from this account and will submit a Universal Data Form to Experian, Equifax, and TransUnion deleting the account. ”
I have sent these, but am on first year of debt repayment / settlement, so I don’t know what effect it will have on our credit until I pull another free report next year. But this is what I have read in books and seen on a few websites. Can’t hurt to ask, right?
In my case, this is a fairly old debt. It’s a Visa card I had a $2,000 balance on. It was closed after I made several late payments. I was trying to pay it off in full, but was barely keeping up with minimum payments. And then because of the spike in interest, and then late payment fees, etc., over a period of time, the balance was just not going down. After a few years, I figured I’d paid that $2,000 off at least double. Then I unintentionally went 4 months delinquent … and that’s when they called me and offered me a lump sum deal.