Editorial Policy

Expert Q&A: Weighing Debt Settlement Options

Erica Sandberg

August 15, 2011

QDear Erica,
I am a single woman who has been devastated by a drug abusing teenager, a loss of income for 6 months and a car accident in January. I need guidance to free up my $30,000 in credit card debt. I had an offer from one company to settle for 65 percent of the balance. I also heard of a program with the credit repair company Accurise that will help you get rid of charge-offs for $59.00. Should I let the bank charge off my debt and then hire Accurise? My mortgage balance is $82,000, and I have at least $50,000 in equity. I am working full-time as a legal assistant. Thank you for your consideration. — Felicia

ADear Felicia,
There is nothing like being hit by one personal disaster after another. Catching your breath to recover and deal with your finances hardly seems possible. Therefore, I can see why you’d consider hiring a company to help you out. However, many times they’re a waste of money and may do more harm than good.

Regarding debt settlement, if the creditor — whether it’s the original lender such as your credit card company or a collection agency that purchased the account — makes the offer, jump on it if you can. 65 percent off such a substantial balance is quite a discount. Rather than $30,000, you’d only have to pay a flat $10,500. Ask Erica

The catch is that you must have it ready to send. You don’t mention a savings account, but you do have some home equity that you could pull from. Exercise extreme caution and foresight before doing so. Trading unsecured debt for secured debt is risky. If you don’t have enough money to pay your mortgage, you can lose your home to foreclosure.

If you wish to take advantage of the settlement but don’t have all of the cash upfront, ask if they will accept you breaking it up into a few installments of equal value. While they’d prefer a lump sum, they really just want the money. If they say yes, make sure you secure the deal in writing. Send a letter stating that you will pay the account at whatever you’ve negotiated over the phone. Be specific about the payments, including how much they’ll be and the exact dates you’ll send them. Also make a note that upon cashing the final check, no remainder is due. Send the letter certified mail, return receipt requested.

As for Accurise or any other company that promises to “fix” credit problems, I’d steer clear. If you did get the settlement, it will show up as such on your credit report. These reports are only worthy to lenders and businesses when they’re accurate, so you can’t purge true information just because you don’t like the look of it. The Fair Credit Reporting Act does stipulate that you can remove inaccurate or old information, though, easily and without paying for assistance. Just log onto the credit reporting agency’s website and go through the dispute process.

Now, in the event that a settlement is not an option, then you still have a big debt hanging over your head. I strongly recommend you book an appointment with a nonprofit credit counseling agency. For free, they will review your income, expenses and assets, then develop a feasible plan to deal with all your liabilities.

The great thing about money problems is that they are inherently curable, Felicia. And there are positives to focus on. You’ve got a job, a home and, hopefully, fine health after the accident. Your teenager? I’m going to make a wild suggestion: Have him or her help you delete some of those balances. Working together toward a common goal can give purpose to an otherwise out-of-control life.