When you fall behind in making at least the minimum payments due on your credit cards or other personal loans, here's what happens...
LETTERS AND CALLS
Your original creditor wants to keep you as a long-term, minimum payment customers!
Have you looked closely at how the charges are calculated on your credit cards?
If not, you are in for a shock! Your monthly statement will give you a breakdown of how the minimum payment is calculated.
Let's say your minimum payment is $50.
How much is going to the PRINCIPAL (the amount you actually charged/borrowed) and how much are you paying in INTEREST!
Don't be surprised to learn that almost HALF or $25 is being taken as interest and only $25 is paying down the PRINCIPAL!
At this rate, (and they are supposed to show you an estimate) it may take 20-25 YEARS to pay off this debt!
No wonder they want you to keep this up.
This is how they make their BILLIONS in profits!
So now you see why they send letters and call many times a day?
WHAT CAN YOU DO ABOUT IT?
While your account is still with the original creditor (Bank of America, Chase, Discover, etc.) they have the legal right to call you.
Once your account is charged off and transferred or sold to a collection agency, then you can stop the calls. I'll show you how to do this later.)
You may get a letter that will OFFER TO SETTLE your account for LESS THAN THE BALANCE. This is called a SETTLEMENT OFFER.
Sometimes they can be very good, but usually, they only offer to reduce the balance by 20%-25% and often they want it paid in a LUMP SUM within 30 days or so.
If you have the funds, then it may be a good deal, but if you can be patient, the account will ultimately CHARGED OFF and transferred or sold to a collector.
NEW ROUND OF LETTERS AND CALLS
Now you will start getting letters and more calls from a debt collection agency.
Yes, it is annoying to get all those calls, but now you can STOP THE CALLS:
The Debt Collection company has either had this account assigned to them by the original creditor or have purchased it.
Either way, now they should be open to SETTLEMENT.
We negotiate with debt collectors on behalf of our clients every day. Here is a sample/example of what a SETTLEMENT AGREEMENT looks like:
HOW WILL THIS EFFECT MY CREDIT SCORE?
If you have fallen behind on your payments, your credit score will go down.
There are a lot of factors that go into calculating a credit score (very confusing), but late payments makes up a large percentage.
If you'd like to learn more, click:
The most important factor to improve your credit score is to pay off balances, old and new!
To a lender, even if you have had a time of late payments or "settled-for-less than the full balance", the fact that you took care of is VERY IMPORTANT!
I've had clients that completed the Settlement Program go from a credit score of 580 to 700 within 3 months!