Monday, January 30, 2023

How To Pay Off Delinquent Credit Card Debt

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Figure Out How Much You Can Afford To Pay

How to Pay Off Credit Card Debt Fast

Before deciding how to pay off your debt, youll want to take stock of your budget and finances to assess how much you will reasonably be able to pay. Look at your monthly cash flow and determine how much you would be able to put toward debt repayment or debt settlement, adjusting your budget as necessary to cut back on optional expenses like streaming subscriptions or cable packages.

Is There Anything More Annoying Than A Roommate Who Leaves Their Dirty Dishes In The Sink

Youve asked them to wash their dishes before, and they said they would do it, yet they dont. Then they forget again and a few more dishes are added to the sink. By this point, youre frustrated, but not as angry as when they then do it a third consecutive time. Ultimately, you move out and tell all of your friends what a horrible roommate they were, and your old roommates reputation is ruined.

Dirty dishes might seem irrelevant to your credit reports, but what if the dirty dishes symbolized late credit card payments? Imagine that youre the annoying roommate to your creditors, who are becoming increasingly frustrated with your delinquency. They might tolerate one late payment and give you a second chance. But if you keep making mistakes, you can ruin your relationship with them, in addition to maiming your credit scores.

So How Will My Score Change

If youre able to pay or settle a delinquent collection account and you apply for a loan or credit card with a lender thats using a newer credit scoring system, its possible that your scores are going to be higher than if the collection still had a balance. Keep in mind, however, that your score may not change at all, especially if youve got other negative information on your credit report.

In terms of how much you could see your score climb, it could be as little as a few points or as much as several dozen points. If youve recently paid off a delinquent debt or youre planning to in the near future, you can check your free credit score right here at Credit Sesame to see whether youve gained any points. We use the VantageScore 3.0 model, which is one of the scoring systems that ignores zero dollar collections.

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Digging Out Of The Credit Hole Caused By Delinquent Credit Card Bills

Although creditors offer some leniency when youre late initially, once they start reporting credit card delinquency to the credit bureaus, you end up in a hole. And digging out of that hole can be tough, especially when your finances are already distressed.

To stop past-due credit card debt from appearing as negative information on your credit history, you must pay the full delinquent amount to bring your account current. In other words, once youre behind your credit history will stay behind until you catch up. Even if you make a payment, it wont show that you did in your credit history. It will still show as delinquent.

This can have a huge negative impact on your credit score. Every month where the payment is listed as delinquent will ding your score. So, month after month, your will take damage until you catch up.

If The Collection Hasnt Been Paid Continue Paying On Time

How Often Do Credit Card Companies Sue for Non

Assuming the steps above dont work, then you want to take measures to prevent further damage to your credit score. You will need to continue paying the debt until the creditor responds to your validation request or until youve paid the entire balance off.

Chances are, you dont have much room in your budget to make extra payments on a debt you didnt expect to go to collections in the first place. In this case, try to make a payment arrangement with the creditor. Pay as much as you can with the frequency that work for your budget.

To make sure the collector doesnt violate any part of the Fair Debt Collection Practices Act ask them to put the payment agreement in writing. Then, be sure to pay according to the agreement.

Also, avoid giving any debt collector direct access to your debit or credit card or even your bank account, as they could withdraw more money than you agree to. Make your payment by check or money order. In some cases, you may be able to pay online.

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If That Fails Wait For The Collection To Drop Off Your Report

Generally speaking, negative information is removed from your credit report after seven years. The clock starts from the first date your delinquent accounts are reported. This means if you miss one or more payments, then the account is sent to collection, the late payment information will be removed seven years after the first date of delinquency, not when it gets to collections.

Be aware, however, that just because a debt disappears from your credit report doesnt mean you dont have to pay it. If its not past the statute of limitations or the time frame when a creditor can sue you for a debt, then a creditor still has the right to pursue payment and even take you to court to recoup it.

Each state has its own laws that govern the statute of limitation on debt. Make sure you understand your responsibility to pay old debts based on your states laws. If necessary, seek counsel from a lawyer to make sure you are compliant with your debt obligations and will not end up paying more than required.

Should you negotiate a pay-for-delete agreement?

In some cases, you can negotiate what is called a pay-for-delete arrangement. With pay-for-delete, you pay all or a portion of the debt in exchange for the collection agency removing the account from your credit report.

What Is Debt Settlement

Debt settlement, also called debt relief or debt adjustment is the process of resolving delinquent debt for far less than the amount you owe by promising the lender a substantial lump-sum payment. Depending on the situation, debt settlement offers might range from 10% to 50% of what you owe. The creditor then has to decide which offer, if any, to accept.

Consumers can settle their debts or hire a debt settlement firm to do it for them. In the latter case, youll pay the firm a fee thats calculated as a percentage of your enrolled debt. Enrolled debt is the amount of debt you have when you enter the program. By law, the company cant charge this fee until it has settled your debt. Fees average 20% to 25%.

Debt settlement may also entail tax costs. The Internal Revenue Service considers forgiven debt to be taxable income. If, however, you can demonstrate to the IRS that you are insolvent, you will not have to pay tax on your discharged debt. The IRS will consider you to be insolvent if your total liabilities exceed your total assets. Its best to consult a certified public accountant to determine if you qualify for insolvency status.

According to AFCC data put together by Freedom Debt Relief, one of the countrys most prominent debt negotiators, debt settlement is by far the cheapest option compared to credit counseling or making minimum monthly payments, as the infographic below shows.

Debt settlement will most likely have a negative impact on your credit score.

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Try A Balance Transfer Card To Get Out Of Debt

If your debt has not gone to collections yet, one option to help you save tons on interest and pay it off more quickly is to use a balance transfer credit card that offers 0% interest for an certain length of time . The options below all require at least a good credit score, so they are usually only effective to use before your debt falls into delinquency.

The Citi Simplicity® Card lets you pay off debt over a long period, with a 0% APR for the first 21 months on balance transfers .

Alternatively, if you’re looking to earn both rewards and pay down debt, you should consider the Citi® Double Cash Card, which offers 0% APR for the first 18 months on balance transfers .

What Does It Mean If My Credit Card Is Suspended

How To Pay Off Credit Card Debt

When your credit card gets suspended, it means that your card issuer has taken away your ability to make purchases with the card. Typically, credit card issuers suspends a delinquent account to help limit the total owed.

Different kinds of suspension can happen at different times. For instance, a creditor may stop or pause purchase authorization, such as when a cardholder has reported the card as lost or stolen, and this is not necessarily because of a past-due payment. Early in delinquency sometimes in the first few days or months the card issuer can stop authorizing purchases when you use your card. As the delinquency matures usually when youre 3-4 months late your creditor may suspend your account altogether and certain actions are required to reverse the suspension. That could entail you making the full minimum payment, and the creditor conducting a review of the account.

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Keep Your Balances Low On Revolving Credit Such As Credit Cards

How much of your available credit you actually use is called your credit utilization ratio, and it makes up 30% of your credit score. For example, if you have a credit card with a $12,000 line of credit and youve charged $9,000 in purchases recently, that means your credit utilization on that one card is 75%. That kind of ratio is going to have a negative impact on your credit scores, because, according to Experian, it can be seen as a flag to potential lenders or creditors that youre having trouble managing your finances. Experts generally agree that its best to keep your credit utilization below 30% if at all possible.

Keep in mind however, that if you pay your balances in full each month meaning, you arent paying interest charges your credit utilization will remain low no matter how much you borrow month to month.

Ways To Pay Off Debt In Collections

As we’ve gone over, the best ways to pay off debt that’s gone to collections are to negotiate a lump-sum payment or set up a payment plan. Starting the process of paying off the debt is a big step toward saying goodbye to debt collectors and, eventually, to the debt.

When you’re weighing a lump-sum payment or payment plan, go over all of your debts. Make a list of what you owe on all your loans and credit cards, and note the interest rates and monthly payments for each debt. Then, add up how much you owe on all of these debts each month. Checking your allows you to see your debt balances in one place.

Once you’ve completed that list of debts, calculate all of your other expenses. This includes rent, groceries, utilities and gas. Some of these expenses vary from month to month, so you’ll want to come up with a monthly average for non-debt expenses based on that spending over the past several months.

Next, subtract your after-tax income from the combination of your monthly debt and non-debt expenses. If your income total is higher than your expense total, you can put the difference toward clearing the debt that’s in collections. If the leftover amount falls short of what you owe, look for ways to cut spending, earn extra income or both.

Prioritizing the debt that’s in collections can help avoid further harm to your credit and can get rid of your debt collection headache.

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Timeline Of Debt Delinquency

Delinquency can get more serious with time, depending on how many days have passed since your last payment. During each stage of delinquency, lenders often respond differently and with different repercussions, in terms of what they charge in late fees and when they might report your account to a major credit bureau, among other factors.

Heres a timeline of what you can generally expect:

Getting Your Debt Charged

How to Successfully Deal with Credit Card Debt

Once a debt is charged-off , it stays this way on your credit report regardless of whether or not you pay the debt.

If you decide to pay it, the debt will merely be reflected on your report as a paid charge off. While it does look better to lenders manually looking through your credit report, its unlikely to improve your credit score.

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Getting Out Of Debt When You Have Variable Income

For those who work as independent contractors or freelancers, having a different income level each month is normal. However, it can be difficult to budget when youre not sure how much you will make.

Laura Adams of Money Girl podcast suggests knowing your spending baseline and setting up a holding account in her article 6 Steps to Help You Budget with Variable Income.

She also wrote a book specifically for solopreneurs. Read about it here and watch her interview below:

Laura Adams is a personal finance expert author and speaker who makes understanding complex financial topics simple. Shes hosted the money girl podcast since 2008, and were always happy to have her answer our readers questions on Debt.coms Ask the Expert section.

So I just wanted to start if you could maybe give us a little intro. of yourself i have been a personal finance expert writer speaker podcaster since about 2007. I started podcasting in 2008 and that opportunity kind of led to a lot of other things including writing books and doing PR as well.

Its funny when you write a book, people expect you to go out and talk about the book and really promote it and realize i really liked it and kind of got into doing more PR.

What is it about and why is it important right now?

Yeah this is the new book Moneysmart Solopreneur.

So this can catch a lot of new entrepreneurs. By surprise talking to an accountant a friend or family member may have somebody that they recommend that you use.

These Simple Steps Can Cut Your Debt And Save You Money On Interest

Eric is currently a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business.

Using a credit card can help you build a strong financial foundation. But credit card debt can add up quickly. That’s especially true in difficult times. If you have credit card debt and want to pay it off, this article can help.

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A Call From A Debt Collection Agency Is A Call Nobody Wants To Receive But If You Become Significantly Delinquent On A Debt You May Need To Deal With A Debt Collection Agency In Order To Pay Back The Money You Owe

Before we go any further, lets agree on one thing: Unpaid debts can be stressful and confusing. You may not even be sure how your debt ended up with a debt collection agency in the first place. But its important to look beyond the potentially intimidating letters and phone calls to understand whats really happening and come up with a solution that works for you.

In this article, well go over how to make a payment to a debt collection agency. Heres a basic outline of the steps, in case youd like to jump ahead.

Take Taxes And Fees Into Account

How To Pay Off Credit Card Debt FAST

When you make a decision regarding paying your debt in full or settling it, its important to keep the tax implication of settling in mind. You have to pay taxes on forgiven debt. If the forgiven amount is more than $600, you will receive a 1099-C Cancellation of Debt tax form from the creditor or collection agency with whom you settled.

The IRS requires that you report any amount of forgiveness for that tax year because its considered income. When added to your taxable income, the money you just saved via a settlement could cost more than anticipated. In addition to taxes, you may also have to pay fees to settle your debt. Its important to pay attention to these extra expenses because as your savings diminish, the value in settling diminishes as well.

If settlement is the only way you can afford to pay off your credit card debt, just make sure you set aside enough money to pay those extra taxes.

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Make An Extra Monthly Payment

Interest compounds daily on unpaid debts. That means every day you wait to make a payment, youll have to pay more in interest charges. Luckily, you dont need to wait until your monthly billing statement comes through to pay down a portion of your balance, and you arent limited to making just one payment per month.

If youre paid every two weeks, you could strive to make two payments a month or, if you get paid each week, you could get started on your debt management by paying weekly. If you opt for this method, ensure that the amount you pay toward the debt in advance at least covers the minimum payment by the time your credit card statement is due. Why? If you dont meet the minimum, you will be charged a late fee and penalty.

Pro tip: Paying down your debt quickly can possibly help improve your credit score by lowering your credit utilization ratio . Why should you care? It can make it easier for you to qualify for a balance transfer credit card.

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