Partial settlement before default ??

Diva0804

Hi

Apologies. I'm not too familiar how to use this forum. I posted in the stepchange sticky thread, but thinking maybe I will get more answers if I make a new thread?

I have a query about partial settlement of a credit card debt of around 8K.

My creditor agreed to freeze charges and interest at the beginning of the year when the balance was 10k, and I’ve been keeping up with the minimum repayment which amounts to 200£+ every month.

However, it’s been extremely difficult, and I’ve had to sacrifice almost everything. Daycare cost for two small kids, rent and utility bills is what is making our financial situation difficult, and I don’t see how we can go on like that. For instance, I need to buy a new car seat for my little one next month, and don’t see how this is feasible without paying less than the minimum amount…which means my account will fall in arrears.

I’ve had the time to think over it this, and now feel like I want to go down the route of partial settlement to clear my credit card debt once and for all.

My question is:
If I start making small token payments for 5 months straight (let’s say 50£ instead of the 200£ minimum I’m currently paying), and then propose a partial lump sum settlement BEFORE they send me a default notice (which usually occurs after 150 days of arrears), will they accept it? Basically, I’m assuming that falling into arrears will make them more likely to accept a partial settlement of maybe 25% of the full amount (which I’m hoping I can secure with help from family)

If they do accept, will my credit report show a default, a partial settlement, or both ?

And if my credit reports shows a partial settlement only (but not a default), for 6 years, does that mean I will find it hard to secure a mortgage the next 6 years?

I know for a fact that I’m absolutely done with credit cards so I don’t really care about a low credit score (I don’t ever want to apply for one),...but I’m 37 , with 2 small kids and never had a mortgage…. and I’m worried about becoming a home owner only 6 years from now.

I’m hoping that a partial settlement before default and debt collectors getting involved will mean my credit score is not too tarnished, if that makes sense?

Thank you for your help.

sourcrates

Question,

Why would a creditor accept a partial settlement of a debt when you are still bound by the terms and conditions of your agreement ?

Answer,

They won’t, you have to have defaulted on your agreement before any offer of partial payment would be considered, and even then at such an early stage in the process it’s unlikely.

Settlement offers usually get taken up long after the account has been defaulted and sold on a few times, this is normally a few years down the line.

Where do you get the 150 days timeframe from ?

Remember, unsecured credit debt is all non priority, essential payments come first, don’t struggle just to keep a clean credit file.

Diva0804

Thank you for coming back to me.
The creditor told me that after 150 days of arrears, they would send me a default notice. And after 180 days, i will go into default and they would pass that on to a debt collector.

I naively thought they would accept a partial settlement, rather than pass me to a debt collector ?

I just feel it will take me forever to pay off this debt, all while living extremely frugally. I feel guilty I'm depriving my kids, and embarrassed that at my age I'm still living paycheck to paycheck, don't have any savings, mortgage or sense of financial security. I was hoping that by clearing this debt with a partial settlement early, I could finally breath and start fresh...

sourcrates

You can’t have your cake and eat it unfortunately, you can go down the road of debt management, but not without it affecting your credit file, it depends what matters most to you, clearing the debt and being able to afford to live, or some number on a file no one ever sees.

Can you cut back on your budget elsewhere ?

A statement of affairs will give us a clearer picture of your situation.

Diva0804

I know the credit score doesn't mean much.... unless we're talking about applying for a mortgage... which i would like to do some day sooner rather than later, given my age.

Not sure where else i can cut back on. Like i mentioned, rent and daycare cost for 2 in London is what is affecting us. My salary is pretty much swallowed up by daycare and child cost, and we're managing everything else on my partner's salary. No outings, no holidays, no personal shopping for us like clothes ect, no eating out, no sky, ect...It's been painful.

So is there never any instances of credit reports showing a partial settlement but no default?
If they will not agree a partial settlement, unless I'm in default, what should I do with any lump sum i manage to eventually come up with? Put it towards the debt, and continue paying the minimum amount which will be a bit lower?

[Deleted User]

As per the posts above, very unlikely to get a settlement figure before default and being sold to a debt collection agency. Even then a 25% settlement is unlikely unless the debt collection agency has been collecting minimal payments for years on end.

Furthermore, it is likely you have an "AR" arrangement to pay marker on your credit file against the CC debt, this will stay on file for 6 years after final payment (so 10 years from now at your current payment rate) and may also affect mortgage applications anyway - some lenders will treat an AR marker as being as risky as a default, others may not. I'm not recommending a default but it will clear off your credit file sooner than an AR in this scenario.

If you are looking to get a mortgage in less than 6 years time you will be needing a deposit of at least 5% which is going to be of the order of £10-20k. If you can't afford the £200 a month for the next 4 years of paying CC debt, you certainly aren't going to save £10-£20k for your deposit in the next 4 years on top of those payments so I wouldn't be worrying about your mortgage unless your fortunes change.