J wrote in trhough the GetOutOfDebt.org site and asked:
“I was paying my bills in time, till I decide to go to a debt consolidation program so I can get more money for myself. I was paying them for a year and creditors started to call me that I havent make payments for 11 months so I told about the debt consolidation proram that I had so I was having bad credit with this program so I decide to canel them and pay my bills on my own again but the creditors they were asking now for the full amount of money so I got stuck.
How do I get to pay my bills faster? I was planning to pay the credit cards that had lest amount and continue like that. One by once even though Im not paying the other credit cards. So what do you think?”
Well that is one hell of a fine mess you got yourself in.
It sounds like the first program you went into was a debt settlement program where you pay the company and they accumulate funds and when they have enough money they make an offer to the creditor to take less than the full amount. The worst part is that it sounds like you did this just so you could pay back less than you owed.
Dude, you got screwed over. A debt settlement program might be appropriate in some circumstances where people have already trashed credit but if you don’t and you go into a debt settlement program, you are going to flush your credit right down the toilet. The only time I think a debt settlement program is advantageous is when you have cash on hand to pay the creditor a reduced amount right now to settle the debt in full.
What debt settlement companies often don’t tell you is that any amount of debt forgiven by the original creditor is counted like income by the IRS and you owe tax on that money. Secondly, settlement companies don’t do a very good job of explaining that because your payments are not going to the creditor, that you will wind up in collections and with a trashed credit report.
The damage to your credit score and credit report have been done now and we can’t make that magically vanish. You can however start repairing it by coming to an agreement with your creditors for monthly payments you can afford. If you make those payments on time, every time for at least a year, then your credit score will begin to improve.
If you chose to pay some but not all of your creditors then your credit report will still be damaged with a ‘slow pay’ as some people call it.
There is no mystical way to pay back less than you are contractually obligated for unless you pay it off by doubling up on your payments, pay them off in a lump sum, or enter a debt management program and get some interest rate breaks from your creditors. However, with your first failed attempt at getting out of debt I would be surprised if your creditors would be sympathetic towards a credit counseling approach now. But, stranger things have happened.
So, with all that being said here are your options.
- Double up on payments to get out of debt fast and save interest payments.
- Enter a debt management program to see if you can get your interest rates reduced and get on a monthly payment plan.
- Go bankrupt, swallow the biter pill and start rebuilding your life in the time you will otherwise use to make dinky little monthly payments and get nowhere.
Just my honest opinion.
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