Hello,
I'm in ~$35,000 CC debt over 3 cards. It's dumb and horrible. 2 years ago I had an 810 credit score and today it is ~615-630.
I have not defaulted on any payments and have been paying at least the minimum on my cards but a little bit more on my highest debt card.
On Monday, I enrolled in a "hardship-based debt resolution program" through Accredited who I found through nerd wallet.
- I'm sure you all know but the program is where you don't pay your cards for 3-4 months to the point where creditors or your lender will negotiate your balance down to something lower. The program has attorneys that'll negotiate for you.
- My payment would be ~$250 bi-weekly to line up with my pay schedule for 55 months (I was planning on paying $1200/month so I could go through the program in 28 months or slightly less)
(this includes the fees for attorney retainer and the program fee)
- I asked multiple times about the tax implications and they said very rarely someone gets issued a 1099-C but they don't usually see that and I could qualify for an exception due to my student loans.
However, the more I thought about the logic, i realized it made no sense as my score is currently low due to my very high utilization but that will go up once my utilization goes down.
I asked many times how this would affect my credit score long term and every agent or person I talked to mentioned that they had been through the program and were able to get mortgages/credit cards 3-6 months after the program but I really don't understand that since payment history is 35% of your score.
Today I spoke with a credit counselor found through the FCAA. They gave me the option for debt management plan where I would close my cards, they would negotiate the interest rates.
-I'd pay $806/month for 52 months (this includes a $50 monthly fee to the counseling service). In this case I would also pay ~1200/month.
I'm applying to second jobs and making ~$200-400 extra per month w/ random side gigs (after setting aside taxes) that I am directing to debt.
I think the debt management plan is better for me because I just want my payments to go towards the principle rather than the interest so I can actually pay down my debt. But I would appreciate third party perspective if a debt management plan actually makes sense for me and doesn't have long term implications.
When I withdrew from the hardship program today they told me of course a credit counselor would suggest credit counselling over the hardship program and that I'm just paying people to tell me how to spend my money. They also said that both programs will have the same negative effect on my credit score and that the debt resolution program makes more sense because I'd pay less in the long run and I'm paying attorney fees so if the companies sue me for my debt I'd have lawyers on hand.
I will need a new car next year or the year after so my main plan is to improve my credit score and reduce my debt. If anyone can help me decide or point me to resources that'll help me decide the best way moving forward.