Should I close my cc account before I default?

[Samba]

I am considering accepting the payment plan offered by Bank of America regarding my cc balance. I lost my job 2 weeks ago so I called them and they offered to close the account, cut the interest in half and I must pay $250/month for 5 years to pay off the 12k.

The minimum payment now is $300 so since I am still waiting to receive my 1st unemployment check $50 less a month sounds good. If I don't find a job in 6 months I will have zero income and will default. If that happens and the account is closed doesn't that mean they cannot add interest or jack up the balance in anyway?

It seems to me I should go for the deal and close it now and take a hit to my credit so I won't have to worry about the balance going higher if I need to walk away. Am I missing something? Thanks in advance.

[DebtHater]

If the account is closed they can add interest and fees. In these "deals" the creditors make they will close the account and set the interest low for the repayment. I'm sure there's fine print somewhere that if you default, things go back to the way they were.

Should you want to take this repayment plan I recommend you get the terms in writing before sending any money. I wouldn't be the least bit surprised if they won't send you the terms. They'll say something like "the plan goes into effect when we receive payment and we will send you the terms then".

One other thing... DO NOT give them electronic access to any of your accounts. It's amazing how that $250 you agreed to let them take turns into $500.

[jacko]

You're credit is shot. I would forget about paying your unsecured creditors until your financial picture is positive again. You need to think about whats best for you and cherish your unemployment checks.

And if you have to walk away, which would most likely happen, who cares how high the balance is. I don't understand your logic on this.

I am considering accepting the payment plan offered by Bank of America regarding my cc balance. I lost my job 2 weeks ago so I called them and they offered to close the account, cut the interest in half and I must pay $250/month for 5 years to pay off the 12k.

The minimum payment now is $300 so since I am still waiting to receive my 1st unemployment check $50 less a month sounds good. If I don't find a job in 6 months I will have zero income and will default. If that happens and the account is closed doesn't that mean they cannot add interest or jack up the balance in anyway?

It seems to me I should go for the deal and close it now and take a hit to my credit so I won't have to worry about the balance going higher if I need to walk away. Am I missing something? Thanks in advance.

[Samba]

Well they transferred me over to a 3rd party that partners with them to "counsel" me after I gave them my financial details. Bills, mortgage etc.
Sounds like they want me to come in and set up a budget and pay them.

Basically my credit isn't shot yet but will be bruised at this point since i have no available credit left on the card.

I am attempting to salvage my near future credit situation in case I find a job in the next 2 months. I have non judgment proof assets that could be seized if it gets to that so I am more interested in finding a way to prevent that.

My wife could take out a loan against her 401k for half and I could take out the other half out of mine and pay it off and keep my credit standing. I have never been delinquent on the car I paid off, the cc I have or the mortgage. In these times I think credit is harder to come by so I'd like to preserve it even if I have to take out half of my 401k. Either that or do the plan or spend my unemployment money paying minimum but it is over the limit now...

[DebtHater]

My wife could take out a loan against her 401k for half and I could take out the other half out of mine and pay it off and keep my credit standing.

I wouldn't do that.

Since you're unemployed you technically don't have a 401K anymore, or at least one you can take a loan on with out penalties and taxes. The 401K you do have with your previous employer should be rolled over soon to avoid the above.

As far as your wife's, again, don't touch it. While you have good intentions of paying it back if you don't land that job soon you'll owe the IRS a whole lot of money if you don't pay it back in the required time frame.

What happens then is you'll be broke now and when you retire. I would take the hit on your credit now. Your credit will heal quicker than it would take to rebuild your retirement between the principal you lose, plus taxes and penalties, along with the compounding interest.

Right now your primary goal is to secure an income. Then worry about your credit. If you have to file BK, so be it, it's not the end of the world. Should that time come you're 401K is protected. Just leave it alone and move on.

Well they transferred me over to a 3rd party that partners with them to "counsel" me after I gave them my financial details. Bills, mortgage etc.

Don't tell them anything else as you've already told them enough. Yes, they may "seem" like they are trying to help you but don't forget the disclaimer that they are attempting to collect debt. Any information given will be used to collect that debt. Even when it isn't used in your favor.

[Samba]

Thanks for the reply. My 401k is available and I can get to it but I am aware that I will loose 20% in penalties and owe the IRS the other 10%. I can arrange to give the IRS that amount when I take it out.My wife can take out a 6k loan with 3% interest for 5 years.

I am in no way saying I am trying to the honorable thing to pay back the card, I am trying to save an investment vehicle, a very rare and fully restored vintage vehicle from the 50s from being taken by a judgment. The vehicle could be worth up to 100k in the next 20 years.

[BankruptinNJ]

Thanks for the reply. My 401k is available and I can get to it but I am aware that I will loose 20% in penalties and owe the IRS the other 10%. I can arrange to give the IRS that amount when I take it out.My wife can take out a 6k loan with 3% interest for 5 years.

I am in no way saying I am trying to the honorable thing to pay back the card, I am trying to save an investment vehicle, a very rare and fully restored vintage vehicle from the 50s from being taken by a judgment. The vehicle could be worth up to 100k in the next 20 years.

How much is this vehicle worth now? How do know it will be worth that much in 20 years? What if something happens to it in the meantime? Taking out on your retirement income now to save something that MAY be worth something in the distant future may not be a good idea. Besides, if you don't find a job in a few months you might end up in bankruptcy anyway and you will probably lose the car if it's worth that much.

[jacko]

And what do you need credit for? Can't you learn to budget and live off cash? You already have a mortgage and saving up for a vehicle is not to difficult.

Sure they counsel you. You just gave them your financial info that they can use against you later on.

Leave your 401k alone. Its exempt from seizure. Learn to live with out credit!

Well they transferred me over to a 3rd party that partners with them to "counsel" me after I gave them my financial details. Bills, mortgage etc.
Sounds like they want me to come in and set up a budget and pay them.

Basically my credit isn't shot yet but will be bruised at this point since i have no available credit left on the card.

I am attempting to salvage my near future credit situation in case I find a job in the next 2 months. I have non judgment proof assets that could be seized if it gets to that so I am more interested in finding a way to prevent that.

My wife could take out a loan against her 401k for half and I could take out the other half out of mine and pay it off and keep my credit standing. I have never been delinquent on the car I paid off, the cc I have or the mortgage. In these times I think credit is harder to come by so I'd like to preserve it even if I have to take out half of my 401k. Either that or do the plan or spend my unemployment money paying minimum but it is over the limit now...

[Samba]

Why do I need credit? That is a silly question but I will just say: Hotels, rental cars, household emergencies, vacations. Certainly not now but hopefully next year. And who said anything about saving for a vehicle? I don't need a new one, I have 4.

The vintage vehicle would sell for 60k-80k right now and that is well documented. I have seen vehicle like this one only 3 years older go for 90k. I have 50k at least invested in it. It is insured for a proper replacement value. There is no way I will let it go under any circumstances. I thought I was clear that is why I am contemplating losing 12k in 401k in order to keep it and avoid bankruptcy. Besides I only started my 401

I could protect the vehicle in chapter 13. If I maintain payments of $280/month according to the lawyer I spoke with this week. The info I gave "them" was my unemployment bennies when/if I get them and my wife's meager take home pay and our bills from month to month which I proved would put us in the red if I maintained paying the minimum payment with my present unemployment bennies.

[treehugger1]

If you have equity in some of those four vehicles, then under a BK 13 something will have to give. I would guess some vehicles will be attached by the trustee.

You say you need credit, but yet you can afford a vintage vehicle. Your reasons for credit don't make any sense to me. I have not used credit for four years. I have no problem using debit cards or cash for all of the things you mentioned.

One of the first lessons for myself and many others who owed more than they had in assets was to kick the credit habit.

To each his/her own.

[catleg]

Correct me if I'm wrong here:
You have a single debt of 12k to BofA
You have significant assets.
You just lost your job.

Your choices are
Continue to pay @ 300/month
Go into balance liquidation program @250/month for 60 months
Settle using your 401k assets, either now or later.

Forgetting the credit card for a moment, do you have a long term plan for what you'll live on, if you're unemployed for 2-3 years?

BofA tends to be very slow to file suit in my experience.

Ch13 probably isn't a great choice, you'd probably be better off with the $250 a month payoff scheme.

You'll be better off waiting to withdraw from the 401k until you have had no income for a while, then the penalty tax will be offset by the lack of regular income tax.

How does your housing situation look also. What state are you in?

[Samba]

If you have equity in some of those four vehicles, then under a BK 13 something will have to give. I would guess some vehicles will be attached by the trustee.

That contradicts what I was told by the lawyer I was referred to by the phone number on this site. I was told that I could protect them by Ch 13 and keeping up the payments of $280/month (that is only an option if I am faced with a judgment, which will only occur if I can not afford the consolidation monthly payment and default)

You say you need credit, but yet you can afford a vintage vehicle.

I bought the vehicle 3 years ago from an inheritance. Before the financial meltdown. Then the stock market took the rest of it If I had had a crystal ball I would not have bought it. Now it is the only investment I have left other than the house and 401k

Your reasons for credit don't make any sense to me. I have not used credit for four years. I have no problem using debit cards or cash for all of the things you mentioned.

The last time I tried to rent a car when I did not have a cc (my honeymoon 5 years ago) it was nearly impossible to get one. I ended up paying $250 more than if I had a cc.

One of the first lessons for myself and many others who owed more than they had in assets was to kick the credit habit.

I don't need credit for day to day or luxury purchases, you have missed my point I think. I lived 10 years without cc up until I needed to refinance my house to get out of an ARM that was going to balloon 2 years later. I want good credit for future home purchases after this recession is over if I am forced to sell. I don't see the cc as an evil entity like you do. If I hadn't lost my job I would not be on this forum.

[Samba]

Thank you for your reply catleg

Correct me if I'm wrong here:
You have a single debt of 12k to BofA
You have significant assets.
You just lost your job.

Your choices are
Continue to pay @ 300/month
Go into balance liquidation program @250/month for 60 months
Settle using your 401k assets, either now or later.

In a nutshell, yes.

Forgetting the credit card for a moment, do you have a long term plan for what you'll live on, if you're unemployed for 2-3 years?

No, if that were to happen then I would have no choice but to try and sell the house, sell what I could and rent a cheaper place with my wife as the sole bread winner on 2k a month. I honestly think I will find work before then the DFW area is a large job market and if not I would take 2 or more delivery jobs or anything I could to prevent us from having to move. The mortgage is only $1,200 a month and that is about what a 3 bedroom house rents for in Dallas.

BofA tends to be very slow to file suit in my experience.Ch13 probably isn't a great choice, you'd probably be better off with the $250 a month payoff scheme.

That is what I have heard. I would definitely take the $250 a month plan before bk. It would only be an option if i were to be sued and only to protect the vintage vehicle from being liquidated, no other reason.

You'll be better off waiting to withdraw from the 401k until you have had no income for a while, then the penalty tax will be offset by the lack of regular income tax.

This is valuable info for me thank you. In that case I would be better off trying to pay the $250/month until I could no longer afford it, default and dodge phone calls until I got a settlement off after being unemployed for a while, thereby minimizing my tax penalty for taking out 401k funds to settle, hopefully, for 60 cents on the dollar or better.

How does your housing situation look also. What state are you in?

Unfortunately I am in Texas and they streamline the foreclosure process here. We could be out in less than 60 days I think.

[flyinbroke]

Car rental deals have changed radically in the past several years. I rented one with Alamo a couple of weeks ago on a Visa debit. They held the rental cost, but I never even noticed it gone because it was back in my account when I paid. I had to show my return flight, though. Other rental companies do hold a lot more, but if you have the padding in your account this is not an issue.

Hotels are dicier as they can place holds. In my case, I am not sure of holds, but I do know I had to produce a plane ticket home. I stayed in one and they held the amount plus 50 for incidentals. IT was credited about a week later. The most recent hotel stay did not reflect holds on my account.

I do prefer using a CC but paying with the debit. This trip, I had more money in my bank than on my CC so I ran with it and it was effective.

[DebtHater]

The vintage vehicle would sell for 60k-80k right now and that is well documented.

It would only sell for that if you could find someone willing to purchase it.

In general vehicles are rarely legitimate investments. Realistically anything with a motor and wheels are investments. They almost always go down in value, not up.