“Dear Steve,
We got ourselves into trouble with credit cards, espeically with our amex and a beneficial loan which are 18000.00 combined. Our other loans/credit cards are one for 2k, one for 1300.00 and one for 2400. the payments on the first two are killing us financially each month.
Is there a way to negotiate with the creditors (mainly amex and beneficial) to settle for a smaller payoff amount in full? I am still young and thinking the option of taking a 401k loan to repay it may be my best bet right now since i have the money available in there to take the loan. Paying myself back each month in my 401k would be a lot less expensive then the payments i am making now to the creditors with high interest rates. Your thoughts please?
Jennifer”
Dear Jennifer,
American Express certainly has to be one of the “worst” creditors to deal with. They tend to go for the jugular.
Let’s look at debt settlement for a moment. When you settle a debt for less than you owe you do not have any power or authority to force the creditor to do anything. If they accept the settlement it is because they decide they want to, and logic has nothing to do with it.
Settling a debt is damn near impossible as long as you are current on your bills. That means you’d really need to fall past due to reach someone that will make a reasonable offer for you. Falling past due will unleash the debt collector dragon from both creditors and is not a guarantee that either will settle.
Debt settlement also will damage your credit, both the fact that you’ve fallen past due on the debt and that the debt was settled. Settling a debt is a pain-gain equation.
I would be worried if you took a loan from your 401K in this economy. If you separated from your job you would probably have to pay the loan back within 30 days. I much prefer to see your 401K money left to grow and remain protected from creditors.
You mentioned that repaying the 401K money would be less expensive, but I don’t think so. Let’s say it costs you 5% to borrow the money from your 401K and before you finish repaying the money the economy starts to rebound. If the money you would have left in your 401K would have grown at 15% then what you are really paying is the 5% + 15% of lost growth. I am fully confident that the economy will come back to life and begin growing again. In fact, this is a good time to be investing.
My gut reaction on this is “I’m not sure I like this plan.” Maybe it is the uncertainty of the economy right now and the chance you might get in a position where you’d have to rapidly repay the money, but it does not strike me a a great solution right now.
That being said, you should investigate a debt settlement solution and also a debt management solution. Even bankruptcy isn’t out of the question.
I just want to make sure that you are fully educated by the different solution providers and what they are offering so you can best educate yourself about what path makes sense to follow.
I asked Alex Viecco, from NewEra Debt Solutions for his opinion about your situation and here is what he said.
Although taking retirement money is not a great idea, this might be a good opportunity to get a higher effective return on your money. By settling the debt it will give them a better return than to leave it in a market that is stagnant at best. Also, consider the fact that the credit cards are probably charging an excess of 25%, the client would not be able to outpace the negative return or the credit cards with the 401K.
Again, please keep in mind that I only suggest this with a strategic plan and one with a specific goal in mind.
Both of the Amex card and the Beneficial are negotiable but they must understand that Beneficial being a neighborhood office will usually do their own collections and tend to be more aggressive so they will be dealt with sooner that most.
With a debt settlement program the minimum payment that is suggested (1.5%) $270 will give the client an immediate payment break but they should also consider that the payment break is only temporary but will certainly help.
As for finding the right company I would HIGHLY recommend you use the 14 questions, this will assist you in finding the company that has your best interest at heart. Using a professional will certainly yield you much better results but the challenge is finding the premier company.
That is why we have the 14 questions; you will see why we are the best in the industry at getting the job done.
In recent years we have seen this industry absolutely explode with new companies, creating confusion for consumers. The fact is that debt settlement is NOT a solution for every debt problem, but it can certainly help the folks who are truly dealing with a financial hardship and want an aggressive tool to become debt free.
Best of luck.
What did you use the money from Beneficial Finance for and what are the other loans for?
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Hey Steve,
I just wanted your advice as Im reading how AMEX seems to be the quickest
CC to sue and most reluctant to settle, Im considering going the settlement
route but my 2 biggest CC’s are 15 and 16K w/AMEX, Ive racked up other CC’s
as well trying to keep my side rental business going off a 2nd mortgage.
Thats been my ‘hardship’, on the other hand I make a decent 57K salary
and have access to some 401K funds to get some settlement savings quickstarted,
I could prob save up at least 50% of what I owe to settle with w/in 2 years,
but like I said half it is vs the ruthless beast AMEX, should I give it
a try, maybe hoping to somewhat settle, say even 80% w/AMEX first?
I have to do something, Im starting to drown in CC debt even though I finally
have my rental business back on its feet.How fast is AMEX to sue?
Thanks for all the info here!
John
John,
Historically they have an itchy trigger finger and are fast.
Steve