In 2008 I had a successful internet service company with a 600,000 line of credit from SunTrust. When the financial crisis came in Fall 2008, SunTrust deemed themselves insecure on my outstanding balance and demanded full payment in 7 days. I was current on the line and in fact on all my business and personal debt and at the time had a Credit Score of about 775.
In order to meet the payment demand I was forced to liquidate my retirement savings at a time that the market was tanking. I managed to pay off the loans but was left with little liquidity and no credit. In order to run the business and not layoff people, I borrowed on my credit cards. Eventually things got out of hand and I had to lay off 60% of my staff and scale back after my customers stopped ordering or were slow to pay.
Eventually I was able to put things back together in a way that the company had positive current cash flow. But I have not been able to get any credit at a reasonable rate to pay off the high rate cards. There is about $90,000 in debt. I have paid off about 20% and I have never been late with a payment.
But now in order to grow and have a decent cash flow that covers week to week variations, I need credit and the ability to retain more of the cash flow. I can’t get credit with the amount of debt on revolving credit cards and I can’t conserve cash servicing the high rate credit cards.
Recently when I attempted a balance transfer to a lower rate card, I was denied even this by the issuing bank despite the fact that I had no late payments and never take on what I can’t handle.
The bank, B of A, referred me to NovaDebt, a not for profit NJ corporation.
Is NovaDebt legitimate? They offered me a payment plan on 4 cards with the highest balances (the others I did not want to include as I need to keep some credit cards and anything that goes into their payment plan gets closed and I did not want them messing with my 40 year relationship with AMEX which remains very good).
They offered a plan paying about $1660 a month for 54 months to discharge approximately $91,000 in debt. This includes their $25 a month fee but not their initial fee of $50. It sounds a little too good to be true. Based on the offer they would be paying on my behalf $88,290 after their fee. That’s about $3000 less than the principle although that number shifts constantly but lets say that total amount was the principle after I made one more round of payments directly which is something they said I had to do until I made a second payment to them while they set everything up.
This means I pay no interest and my only risk is they scam me out of my first $1660. And probably make me late in payment.
Assuming you say they are legit, what happens to my credit score by moving forward with them which today stands around 710 only because of high amount of debt and high debt ratio.
There are so many scams–including good write ups that are scam write ups.
Novadebt is a mainstream non-profit credit counseling organization and so I would not be worried about the technical aspects of the debt management plan you might enroll in.
There are some risks that you should be aware of. Accounts that are included will probably be closed by the issuer. That will terminate your good credit history with those accounts.
Additionally, traditionally issuers do not like agencies to pick and choose which accounts are included and any issuer included may unilaterally change the terms they offer while you are enrolled in the program.
Concerns about the nature of the credit counseling – creditor relationship were recently raised in this lawsuit. The suit lays out how credit counseling groups have little to no control over the terms you may be offered.
If you are counting on some specific events happening, such as AMEX not closing your account once they see other accounts closing, or a guaranteed 0% interest rate for included accounts then you may be wish to get those guarantees in writing from Novadabt or any credit counseling group you may work with. I would be highly surprised if any agency was willing to put those guarantees in writing. Let me know if they do!
This is not to imply or infer that Novadebt is not a legitimate company, just that I want you to make sure you have a clear understanding before embarking.
I do question how the plan you say you were offered results in an overall payment that would be less than the debt you are enrolling. Are they settling some of your debt? If so, you need to clearly understand that before you begin, while debt settlement is a valid tool to use in certain situations, it does not come without some consequences.
Settled debt may be reported negatively for seven years on your credit report. Additionally, if you have a positive net worth after you settle your debt you may owe income tax on the forgiven amount above where you became solvent.
You can use my online calculator to review your major options to get out of debt.
I’m not sure if anyone mentioned to you during your credit counseling evaluation but an option to address your cash-flow situation may just be a peer-to-peer loan through groups like LendingClub.com to get you up to $30,000 in cash you can use as a buffer.
The advantage of this approach is that it would not close your current accounts, you can focus on paying off those debts and retain your long credit history with those creditors.
While the loan may cost you more in interest, the cost of the loan may be an expense worth incurring to maintain your good credit and not close cards you may later need.
Please post your responses and follow-up messages to me on this in the comments section below.