What's better?

[Jersey Girl]

A friend and I were having a conversation the other day regarding pay off offers from CC companies. Here's the scenario?

Say you have a CC that is a bit behind in payments. The CC company offers to settle for 40% of the balance. What is better, long term, as far as your credit report is concerned? Taking the settlement so that the card is considered paid off (though the card will obviously be closed)? Or starting to pay the card off (which would take about five or six months and the CC company still may close the account)?

Can anyone shed some light on this?

 

[Shane]

A friend and I were having a conversation the other day regarding pay off offers from CC companies. Here's the scenario?

Say you have a CC that is a bit behind in payments. The CC company offers to settle for 40% of the balance. What is better, long term, as far as your credit report is concerned? Taking the settlement so that the card is considered paid off (though the card will obviously be closed)? Or starting to pay the card off (which would take about five or six months and the CC company still may close the account)?

Can anyone shed some light on this?

Seems to me like paying it off without settlement would be better for your credit.

 

[Jersey Girl]

Seems to me like paying it off without settlement would be better for your credit.

That's what I said. I mean, if you know you can pay it off in the next couple months, why take the settlement (unless you are really that strapped for cash)?

 

[Russ Smith]

the other thing is IIRC if you take a settlement, you get taxed on the amount forgiven. So if they give up 60%, you are taxed on that as income. So it doesn't just hurt your credit rating, it hurts your taxes later too.

I'm one of those that strongly believes if you can pay it off you should, aside from everything else it's the right thing to do.

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[Jersey Girl]

the other thing is IIRC if you take a settlement, you get taxed on the amount forgiven. So if they give up 60%, you are taxed on that as income. So it doesn't just hurt your credit rating, it hurts your taxes later too.I'm one of those that strongly believes if you can pay it off you should, aside from everything else it's the right thing to do.

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Yes, I have heard that as well. Thanks for the reminder.

 

[conraddobler]

Credit scoring is tough to call, it really depends on how the CC company reports more than anything.

I've seen thousands of credit reports and done more than my share of trying to figure out what's ruining peoples scores and I couldn't tell you which one would be better for sure.

What Russ said makes a lot of sense.

What I am seeing is what I call in my opinion vindictive credit reporting, ie collection companies and creditors IMO are figuring out what would hurt the most, what they can possibly do to ruin your score and just pushing down on the hammer to do this.

One example I've seen on a collection recently was a diabolical in my opinion strategy, where they charge off the collection, ok that's one credit hit, it's a collection but then they went a step further and put the high credit as the charged off amount, say $900 bucks but show the current balance with the accumulated interest at say $989 for example, and I think, I'm not sure that also triggers the over the credit limit flags to donk your score even more.

I'd never seen this on a collection before, but again, what I seem to be seeing is people just being what one might call a jerk about it.