My husband and I have about $16,000 in collections to various collection agencies. I also have quite a bit of student loans that will need to be paid on starting in 6 months. We just had a baby and our money is already quite tight.

I am wondering how we should go about paying off these collections. Most of them are willing to make settlements for quite a bit less than they are currently. For example, one is for over 6,000 and they are willing to settle for $3,000. The problem is that we have no way of getting $3,000.

A family friend suggested tucking away as much money as possible a month and then paying each company for the settlement amount as soon as we accumulated enough, ignoring the rest until we got to them. This seems like a good idea, but I'm not sure if it really is.

At this point, I'm not sure what would be more reasonable. Currently each company either wants payment in full, a settlement amount or a monthly payment amount. The monthly payment amounts are too high for our current income, even if we removed all excess spending. If we send in the amount we are capable of, we are only paying on the interest and fees and not making an impact on the principle. For example on the $6000 balance, the interest and fees are close to $300 a month.

We aren't sure what we are supposed to do. Or even what our best option is. Any advice would be greatly appreciated.

We had about $15,000 to pay out last year. My dh had stopped paying all his credit cards when I was going to chemotherpay. I pulled his credit report, called each creditor--with either amount that I knew I could pay off right then, or their letter with their settlement offers.

Most of them took a lot less: meaning I paid an acct that was $9,000 and we settled it for $750.00. That was all I could do. Went to the next acct., some where small. Took a while, but it's done. Thank goodness!

I wish you the best of luck with the accounts. While what I did may not be for everyone, it helped us. DH is building is credit back up slowly. And no credit cards!

You should be able to come up with a settlement aggrement and then make regualar monthly or biweekly payments. If they are offering to settle for $3000 they should be willing to accept payments. My understanding is that as long as you dont "breach" the settlement by not paying as agreed you would be fine.
Most of the time they just want to be paid so even offering $25 or $50 a month may make them happy.
Also, I wouldnt start making payments until there is a settlement amount and you get it in writing, just to protect yourself.

I think I don't have enough information to answer the question. How did you get into this situation? I ask because that might be an indication of how you can get out of it.

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"I've been rich and I've been poor but independently wealthy is where it is at."

My husband before we met racked up quite a bit on his credit cards to pay for food and other stuff while he was in college. He was living at home but supporting his mom with food and rent/utilities when she came up short (which was often). But he paid the minimum every month and would give up his pell grant money to take down the amount every semester at school (he could go to school for free because of a scholarship.)

We met, moved in together and the credit cards were still being used. I was also a student and not working (I should have been, but wasn't, my mistake that I regret now.)

Thank you for the other two responses. It helps to have some ideas and examples.

He lost his job unexpectedly and had trouble finding a new one, as did I. We went almost 4 months before we both found work. Unfortunately we made so little that most of it went to our bills every month and we stopped paying on the credit cards (Big Mistake). We squandered the rest because we are young and stupid. I got pregnant and had a very bad pregnancy, on bedrest for second trimester on. We ended up moving from GA to MN to live with my parents (where we are currently.) Dh found a job up here but it was only part time. We do pay rent and everything btw. So again we found we were living paycheck to paycheck. Our son was born less than 2 months ago and I've been staying home with him because we can't afford daycare and Dh doesn't feel comfortable being alone with him (whole different story there.)

Also we have an eviction on our record from GA because our move between the two states was abrupt and we couldn't pay to break our lease. (Our roommate was abusive when he drank and we couldn't kick him out).

So situation now, we live at my parents house but have to move out soon. We are finally really getting our finances together and taking responsibility for our past mistakes. I in no way blame anyone else but ourselves for being irresponsible with credit and then just trying to ignore the problems until they got to this point. We know we've made a bunch of mistakes and are now trying to fix them. I just don't really know where to begin.

I'm not sure how we got into this situation will get us out, other than be an example of what not to do again. But I'd really appreciate any insight because I don't pretend to really know enough to be sure.

Just remember that when you settle the company that you settled with will send you a 1099 for the canceled debt and you will owe taxes on that amount. We settled with a company last January and they sent us a 1099 for ~$5000. We had to claim that as income and luckily we are still getting a refund. We are only getting 120. Before I put in the 1099 we were going to be getting 1400.

I'd rather settle and pay a little bit of tax than the whole amount.

I know there are ways you can get around it if you are considered insolvent (more debt than assets), but we are not. If you think you are then I would talk to a CPA if you decide to settle to see how you will be affected at tax time.

ashley

When you settle, they will usually let you make it into a couple of payments (maybe 2 to 4), but not drag it out too long. If they write off more than a certain amount you will be taxed for it (I think it's if they write off over $60 - But not sure). Call the collections people and tell them you just can't pay. See what they can do.

See if you can get a forbearance on those student loans! Pay off what you can on the credit and then put that $ toward the loans. I say pay of credit cards first, then deal with the loans.

Have you looked into bankruptcy? I know it should be the last resort, but it sounds like you may be at that point.

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~Happiness is a large family~

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First, I just have to suggest reading Dave Ramsey's "The Total Money Makeover". His book is pretty motivating and might help you see the light at the end of the tunnel.

Is there anyway you can raise your income? Can you have a garage sale and sell some of your things? Can you get a job at night when your DH is home with the baby? Or can he get a 2nd job?

Do you have ANY money left over after the bills are paid? I would sit down first and make out a budget. Put your total income at the top and then list out your expenses. Start with rent, utilities & food. Things you HAVE to pay to survive. Then any car expenses you have to pay to get to work. At that point see how much extra you have to put toward the bills. That will give you a good idea of what you can afford to settle for if it comes to that. You may find that if you can live with your parents a little while longer and save some money, then you can make some headway on the bills.

I don't know much about trying to settle the debt. I just wanted to wish you luck!

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Stay at home mom to my 3 boys... ages 5, 3 & 1!

I can do all things through CHRIST who strengthens me. Philippians 4:13