Editorial Policy

Don’t bank on a big settlement to pay off card debt

Erica Sandberg

January 5, 2016

QHi Erica,

I was fired due to disability and age discrimination and am suing the company where I worked for all it’s worth. In the meantime, I do not have enough money to pay my bills much less my credit cards. Since the fact that I can’t pay my credit cards is the fault of the company, should I call and tell my card issuers I will pay them when I win my lawsuit? When I win, I will have over a $1 million settlement and then I will pay 100 percent of my card bills. Let me know as soon as you can, please. — Tanya

ADear Tanya,

Even without knowing the details of what happened on the job, I urge you to not count on a massive judgment jackpot that you can use for your credit card debt. Nor would I bother mentioning it to your credit card issuers. According to the nonprofit organization Workplace Fairness, which is dedicated to protecting employee rights, plaintiffs (you, the person suing for damages) are victors in just about a third of these cases.

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And if you do beat the odds and win? The settlement may be far less than you’re anticipating. We all hear about workers walking away with a king’s ransom for such lawsuits (in 2014, a man was awarded $26 million for an age discrimination case against Staples), however, Workplace Fairness also reports that the average settlement is nearer to $100,000. Lawyer’s fees and taxes also might be deducted from that figure, which can dramatically erode your judgment.

What you must do now is preserve your basic standard of living, whether or not you win the case. Because you’re not drawing an income, I presume you’re receiving other types of benefits, such as unemployment or disability. What you get from these sources is rarely equal to what you’d be earning, so money is understandably tight.

Determine which bills are essential and which will fall to the wayside by drawing up a priority list. In general, it should look something like this:

  1. Sustenance. You can’t live without food (and water, of course). Shop carefully so you can stretch your dollar.
  2. Housing. Whether rent or mortgage, keep these payments up. Never jeopardize your home.
  3. Utilities. Power and heat are basics. Call the utility companies to ask about special programs for low-income individuals and families.
  4. Transportation. If you can’t walk or take public transportation, a car may be necessary. Make sure you have enough for loan or lease payments, insurance, gas and maintenance.

Managing your credit card debt correctly at this point is important too, especially if you plan on securing employment again. If you don’t pay at least the minimum requested amount by the due dates, your credit rating will suffer. A new employer might ask to see a copy of your credit report, and a mass of delinquent accounts rarely impresses. Aside from that, the credit issuers will take action if they don’t receive payment. That can include collection and a lawsuit — and this time against you.

If you have any money left over after meeting your essentials, parcel it out to your creditors so that each receives enough for the account to get back in positive standing. However, if you have no cash to spare, contact the issuers right away and explain what’s going on. Ask if they’ll accept a hardship arrangement. For a short period of time, the issuers may consent to low or no payments, and perhaps a lowered interest rate. They are under no obligation to accept your plan, but it’s worth a try. A reprieve will let you catch your breath while you find another job — if that’s what you’re hoping for, that is.

Finally, if you do win the case and are awarded more than enough to delete the remaining credit card balances, do so. Then save whatever is left over for your retirement.

Got a question for Erica? Send her an email.

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