How to settle credit card debt with discover site ficoforums.myfico.com
My dad passed away last year. My mom has recently met with a certified financial planner who has given her a good plan to manage her personal budget and plan for retirement. Based upon my mom’s income, savings and overall net worth, the CFP recommended paying off her ~$25k in high interest credit card debt. Not a huge surprise there. She advised my mom to call the credit card companies, inform them that she wishes to payoff the cards, but to negotiate for a lower payoff amount. To be clear, all of her credit cards are paid on time. The CFP said that many of the card companies will let you negotitate to payoff less than the total balance. That sounded a little odd to me given that my mom is not late, nor never been late on any of her payments, so why would a credit card company accept, for example, her offer to pay off a $10k debt for a negotiated rate payoff amount of $8k?
Also, if a credit card company somehow did agree to this, what steps would she need to take to ensure that the account is shown as fully paid off (as opposed to settled for a lesser amount) on her credit reports and to avoid damaging her credit?
Anyone had experience with this and have any tips?
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01-29-2022 01:56 PM
01-29-2022 01:56 PM
Re: Negotiate Payoff Credit Cards WITHOUT damaging credit?
I have never heard of a credit card company offering to reduce the balance of a card, without negative affect.
Instead, this sounds like a Settlement (Settled for less than full amount). That would hurt the credit score and there could be a 1099C at next years taxes that could consider the settled amount as income.
I could be wrong, but this is what that was in my days as a banker years and years ago.
Why would a bank accept this? Well, if its a settlement as I suspect, the bank would rather settle with the customer because they would get some money back. If it charges off to bad debt, they only get pennies on the dollar to sell it to a collector and if the customer goes bankrupt instead, they get nothing. Therefore, it can be advantageous to a bank to settle with a customer whom is having difficulty paying rather than losing the money to a debt collector or bankruptcy.
The only way it would not affect her credit is if she negotiated a settlement and the bank agreed, in writing, on bank letterhead, to delete the trade line.
I will defer to others on this, but it sounds like a settlement to me.
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01-29-2022 02:25 PM
01-29-2022 02:25 PM
Re: Negotiate Payoff Credit Cards WITHOUT damaging credit?
This is why I was suspicious of this advice, from the CFP, @BearsCubsOtters! My thinking is, given that she can afford to pay them all off, it might be advisable to call in and request a lower interest payment. If she secures the lower interest payment, her total payoff amount will automatically come down and then she can pay the balances off.
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01-29-2022 02:44 PM
01-29-2022 02:44 PM
Re: Negotiate Payoff Credit Cards WITHOUT damaging credit?
We don’t know what the CFP was thinking, or your mother’s situation, but there are certainly cases where using some of the money (that saved from the full payoff amount) for something else would be advantageous and some damage to credit score in retirement may not matter that much. The key thing is to make sure the money lasts, and getting new credit may not be needed.
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01-29-2022 03:00 PM
01-29-2022 03:00 PM
Re: Negotiate Payoff Credit Cards WITHOUT damaging credit?
@HorseTears wrote:
My dad passed away last year. My mom has recently met with a certified financial planner who has given her a good plan to manage her personal budget and plan for retirement. Based upon my mom’s income, savings and overall net worth, the CFP recommended paying off her ~$25k in high interest credit card debt. Not a huge surprise there. She advised my mom to call the credit card companies, inform them that she wishes to payoff the cards, but to negotiate for a lower payoff amount. To be clear, all of her credit cards are paid on time. The CFP said that many of the card companies will let you negotitate to payoff less than the total balance. That sounded a little odd to me given that my mom is not late, nor never been late on any of her payments, so why would a credit card company accept, for example, her offer to pay off a $10k debt for a negotiated rate payoff amount of $8k?
Also, if a credit card company somehow did agree to this, what steps would she need to take to ensure that the account is shown as fully paid off (as opposed to settled for a lesser amount) on her credit reports and to avoid damaging her credit?
Anyone had experience with this and have any tips?
Lenders will not agree to a settlement until an account has been charged off. Mom’s credit would be trashed and there would be tax consequences. Unless getting a 50% discount to save $12,500 is worth destroying her credit, she should pass. And that financial planner should go to law school.
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01-29-2022 04:23 PM
01-29-2022 04:23 PM
Re: Negotiate Payoff Credit Cards WITHOUT damaging credit?
@HorseTears wrote:
My dad passed away last year. My mom has recently met with a certified financial planner who has given her a good plan to manage her personal budget and plan for retirement. Based upon my mom’s income, savings and overall net worth, the CFP recommended paying off her ~$25k in high interest credit card debt. Not a huge surprise there. She advised my mom to call the credit card companies, inform them that she wishes to payoff the cards, but to negotiate for a lower payoff amount. To be clear, all of her credit cards are paid on time. The CFP said that many of the card companies will let you negotitate to payoff less than the total balance. That sounded a little odd to me given that my mom is not late, nor never been late on any of her payments, so why would a credit card company accept, for example, her offer to pay off a $10k debt for a negotiated rate payoff amount of $8k?
Also, if a credit card company somehow did agree to this, what steps would she need to take to ensure that the account is shown as fully paid off (as opposed to settled for a lesser amount) on her credit reports and to avoid damaging her credit?
Anyone had experience with this and have any tips?
I’m sorry for the loss of your father, @HorseTears.
I agree with the others who don’t think this sounds right. It sounds like a settlement, like a debt that was not being paid and was either in collections or going to be, and the creditor agreed to settle for a smaller amount, rather than get nothing (perhaps in bankruptcy). But from what you’ve said, it doesn’t sound like your mom is in any financial dire straits and I can’t see why she should follow this advice! At the very least, I think she should get a second opinion. Or just call the creditors and ask! I’m sure they’ll verify that taking that approach would end up in ruined credit and closed accounts.
Instead, if she’s able to pay-in-full right now, that’s what I’d do. If coming up with that much money is an issue and she could more easily handle making monthly payments, asking for a lower APR on each card might be a good idea. There’s no guarantee they’ll grant the request, but if they do at least that’ll reduce the amount of interest accruing every month.
Bottom line, until someone gives a definitive answer: I would *not* follow the planner’s advice. At all. I’d continue making monthly payments or, better, pay off the balances in full ASAP.
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01-31-2022 12:22 PM
01-31-2022 12:22 PM
Re: Negotiate Payoff Credit Cards WITHOUT damaging credit?
@HorseTears wrote:
My dad passed away last year. My mom has recently met with a certified financial planner who has given her a good plan to manage her personal budget and plan for retirement. Based upon my mom’s income, savings and overall net worth, the CFP recommended paying off her ~$25k in high interest credit card debt. Not a huge surprise there. She advised my mom to call the credit card companies, inform them that she wishes to payoff the cards, but to negotiate for a lower payoff amount. To be clear, all of her credit cards are paid on time. The CFP said that many of the card companies will let you negotitate to payoff less than the total balance. That sounded a little odd to me given that my mom is not late, nor never been late on any of her payments, so why would a credit card company accept, for example, her offer to pay off a $10k debt for a negotiated rate payoff amount of $8k?
Also, if a credit card company somehow did agree to this, what steps would she need to take to ensure that the account is shown as fully paid off (as opposed to settled for a lesser amount) on her credit reports and to avoid damaging her credit?
Anyone had experience with this and have any tips?
I think she’s getting bad advice. She’ll be going from a great credit record to an abysmal one.
That’s not what she needs at this time in her life.
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