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susie · Joined: 02 Jan 2008 Posts: 2 2.16 Dollars($)

I have a sizable (90,000) debt on credit cards, due to a business that failed, that I think the only way out of is to do a debt settlement. Currently all payments are made, none are late, but I can not tread water any longer because all my savings are now gone as well. My home is for sale so I can leave this community (staying here is not an option, there's no work) but I am afraid if I do the debt settlement, I will not be able to get a mortgage on another house. (But if I keep all that debt, I may not be able to get one, either.) I am between a rock and a hard place. I will be moving to another state, and my house could sell at any time, or it could take another year. Just how bad does a debt settlement harm your credit?

jameshogg

Hi Deena,

Welcome to forums.

Well, initially when you set out to settle the debt, your credit score will fall because in order to obtain settlement, the account should be in default. This will leave negative marks on your credit report. But once your debt is settled, and there's no outstanding balance left, your score will get better.

Thanks

susie · Joined: 02 Jan 2008 Posts: 2 2.16 Dollars($)

Debt settlements can take a few years, though. What are my chances of getting a mortgage within the next year, or, next few months if my house sells within that time? My credit score right now is in the upper 700's. I hate to damage it to settle the debts, but there is no other way that I can see to get out from under all this.

Guest

You can get mortgage after debt settlement but i think it will take some time before your credit gets better.

The reason behind drop down in your score is as follows: One of the factors that determines your score value is your payment history. This factor is given 35% weightage while calculating your score. So, if you have made late payments or missed payments, naturally the score drops down.

Jessica · Last edited by Jessica on Fri Feb 15, 2008 4:03 am

Hi Deena,

If you go for debt settlement, it will require some time for you to rebuild your credit. Right now, your score is good enough to qualify for a home loan. Currently you don't have any late payments too. So, you might be able to get a home loan now itself. But the thing is you will be buying another house or else I should have advised you to take a debt consolidation mortgage and pay off all your credit card debts. Because the more you keep them, the more you suffer.

Now, there is only one option that I can think of:

Take a mortgage loan and try to pay off the cc debts. Now, offer the house on rent and use the rent payments to pay off the loan. But you won't be able to stay long here as there's no work, so you need to move to another state.

Let the tenant meet the lender so that he can make monthly payments on your behalf to the lender while you are in another state. You can just call up the lender and enquire whether the tenant is making payments in time.

In the meanwhile, you arrange for a rented property in the other state. This is because you have a lot of cc debts and it's unwise to keep it like this, so right now just pay it off and till you get some work in the other state and conditions become favorable, do not buy a new home. I'm not discouraging you but so many people have suffered because of wrong financial decisions in the past few months and that's the reason we find so many foreclosures.

While you are staying in a rented property in another state, try to sell off the property in the current state; you may use a real estate agent for that because you'll be in another state, so that would be quite difficult for you to manage. With the sale price, you can pay off the mortgage which you have taken to pay off cc debts. Wait for some more time, till you can get another mortgage and then buy a home of your own. I know it will delay your plans but let it be done in a better way without you suffering due to bad credit or unwise decisions.

Regards,

Jessica

Posted: Thu Jan 03, 2008 12:41 am Post subject: RE: mortgage to pay off debts

I could not agree more. Jessica's advice includes taking responsibilty. Consider the option of renting and aggressively paying off your consumer debt. In many parts of the country this would be a great year to be a tenant rather than a home owner as a mortgage and a home's maintenence costs usually greatly exceed what it would cost to rent that very same home. You wouldn't need to wait until the entire cc debt was completely repaid, but consider significantly reducing it before obtaining more debt.
I appreciate your concern for retaining your great credit rating. Hopefully you can find a way to keep it great.
Best regards,

Jessica · Posted: Fri Jan 04, 2008 5:36 am Post subject: RE: pay off debts

Well, I think I suggested renting as a suitable option when Deena goes off to another state. And, yes, if she has the finances to pay off her debts. She may do it but as Deena says, she isn't able to carry on any longer. In that case, I thought taking a mortgage as per her affordability would be the right option.

Regards,

Jessica.

gmakerley · Posted: Fri Jan 04, 2008 9:53 am Post subject:

susie, you are clearly in a bind.

im not sure i agree with james hogg's statement that the debt must be in default in order for you to make a settlement offer. i think, if you decide to use this tactic, that you might want to call the creditors in question and simply explain that you do not want to go into default, but that you are also unable to pay in full. if they will settle prior to declaring your loan in default, so much the better.

this will not have a positive impact on your credit rating, obviously. however, i believe you might be able to salvage some of your good credit and retain a decent score if you were to do it in that fashion.

can you get a mortgage loan with settlements showing up on your credit report? certainly you can. just bear in mind that any major hits on your credit report will impact the rate structure on your new loan.

it's a quandary, no doubt.

scherzeroni · Joined: 05 Jan 2008 Posts: 51 18.77 Dollars($)

It depends what kind of debt settlement you are talking about. If you are looking into a consumer credit counseling type settlement then yes it will effect your credit to some degree but not as bad as a bankruptcy would. If these debts are already charged off collections then paying them off will not make much of a difference on your credit. Even if you pay off a collection, it still stays on your credit for 7 years. I don't want to suggest bankruptcy but you may want to contact an attorney to see which option would be best.

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