Lost In Debt Part 2
This is a continuation of yesterday’s answer to a reader’s question. If you missed part 1 you can read it here.
After yesterday’s post Lost in Debt wrote back in (thank you!) with some more information.
awesome information.
the questions to the lawyer part really open my mind to things that i wasn’t thinking about, especially the income tax aspect. and definitely the student loan part.
just a couple clarifications (since i wasn’t clear in my story) the 10k that i was going to allocate to clearing debts was only a portion of my current savings that i was planning on bringing with me. its almost about 20k. i was planning for about 1700/month for costing of living (10 months) & then 3k for lawyer/bankruptcy fund.
i am fortunate to still be close with people back in the states, so i have an older project vehicle that has been sitting with an uncle that just needs a few things to be running and people who would take me in for a little while (while i get readjusted to stateside living).
the co-signer part was an absolute eye-opener. and now for it is an absolute last resort.
also was just wondering if it made a difference in which state i filed bankruptcy. because the majority of my dead was accumulated while i was living in San Francisco, but when i am planning to relocate to seattle because that is my original home town.
Again thank you very much for the information and i am definitely looking forward to the next installment.
Lost in Debt.
Thanks for the added information Lost in Debt! Let’s take a look at the steps you will want to take if you choose to pay your debt back.
Paying Back Old Debt:
Since you have about $24,000 worth of debt, and around $10,000 to pay on it, it does make you an excellent candidate for debt negotiation.
First Steps:
The first thing you will want to do (even before you move back to the states) is to pull all three of your credit reports.
Specifically you are looking for judgments. If you debt is several years old then it is definitely possible that you have a couple of judgements against you.
If you do have judgments listed on your credit report you can either stop them with Bankruptcy, or pay them back as fast as possible before you get a job in the United States.
If you don’t deal with those judgments right off, then your wages will be garnished once you get a job. I’ve had it happen, and it’s not only embarrassing, but horribly inconvenient if you were counting on the money.
So, pull those reports and check it out because that will be your first step.
You can access your credit reports on line by visiting Annual Credit Report.com
Next, you will want to use your credit report to make a list of everyone that is still reporting the old debt on your credit reports.
Find A Credit Counselor:
Since your debt is so old, it also makes you a prime candidate to settle for less than you owe! A qualified credit counselor can work wonders. They can negotiate debt settlements as low as 60% of your total debt or lower.
Not all credit counselors are created equal though, so choose carefully. We have a couple of articles that might help you with the process:
A credit counselor will take over all the debt negotiations for you. You will simply give them the money that you have to pay on your debt, and continue to write them one check each month until your dbt is paid off. If collectors contact you, you can give them the name and number of your credit counselor, and they will deal with them from that point on.
There are situations where credit counseling can hurt your credit score, but your situation really isn’t one of them. For one thing, you can give them a lump sum to negotiate with immediately, and two, your debt is old enough that they should be able to negotiate settlements pretty easily. If you want to pay your debt back, it really is the best option.
Questions to ask a credit counselor:
- How will any judgments I have affect my repayment plan?
- What is your track record with negotiating debt settlements?
- How much do you think you will be able to reduce my total debt if you negotiate settlements?
- Can you do a settlement on my student loans?
- Is there anything else I need to know about this process?
- Can you negotiate to have some of this negative information removed from my credit report? (Some collection companies will do this as long as the credit counselor requests it and makes a payment.)
- What are my tax implications iif you settle my debt?
Your Credit Score:
Paying back your debt is always going to look better on your credit report than defaulting on your debt. You can expect your credit score to go up if you pay back your debts, and it will make a difference to future lenders that your accounts show paid in full.
I wish I could tell you specifically how much of a boost your credit score will get, but I can’t. The FICO system is notoriously complex, and there really is no way to predict an exact number. That might be a question that your credit counselor can answer once they see each of your accounts.
If you do choose to repay your debt this way, my advice would be to go ahead and get at least one secured credit card right away, and charge a very small amount on it each month.
That regularly paid new account, coupled with the old debt repayments should boost your credit score pretty quickly.
As far as your credit score being over 700, it will still take two to three years.
Final Considerations:
The best way to compare your options is to ask yourself these question:
- How long will it take you to repay all of your debts? If it will take you less than five years (the average length of time it takes to fully recover from a bankruptcy) then repaying your debts makes sense.
- How soon do you expect to need a new loan? Your credit score will go up much faster with debt repayment than with bankruptcy. If you anticipate needing new loans sooner, then repaying your debts is the best option.
- What are you the most comfortable doing? Bankruptcy is a a one-shot deal, with years of credit recovery. Debt repayment is years of payments that works as a credit recovery system on their own.
If you choose to repay your debts this way, you will still want to challenge some of the older bad accounts on your credit report. Repaying your debt, plus a new account in good standing, plus removing anything you can off of your credit reports will give you the fastest method of recovering your credit score.
As far as your question about which state you need to file bankruptcy in – I would search the internet, and email a lawyer in each state asking them. That will give you the best answer since each state’s laws are different.
Thanks again for your question. If there are any parts of these answers that you would like to see clarified, or discuss more, please feel free to leave a comment.
Thanks!
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