- Debt settlement is a more aggressive approach than CCCS.
- Citibank Sears MasterCard is proposing you enroll in a DMP.
- Bankruptcy has several serious downsides that make it an option of last resort.
I have a Citibank Sears MasterCard credit balance of $12,000 I cannot pay. They offered me a settlement of $207 for 5 years. Is this a good deal?
I have a Citibank Sears MasterCard credit balance of $11,979.19. I am going on two months without making a payment. I was paying about $386.00 monthly. Last night I received a phone call from Citibank Sears card, the customer service rep was nice and pleasant. She offered to help me get back on track with my payments. Citibank is willing reduce my monthly payments for $207.00 for 60 months. They would require to direct deposit my checking account and stop my access to using the credit card (no problem for me). I not so sure about direct deposit but I almost don't have a chose. What did you think? I am suppose to call them on Nov 19th to discuss this payment plan arrangement and begin 12/13/10 if I agree. Oh, she stated they are helping many customers. Anyone else have payment arrangements with Citibank Sears MasterCard?
If I understand your message correctly, Citibank Sears MasterCard is offering to place a hold on your credit card account, will debit your checking account $207 each month for five years, and will charge you virtually no interest.
In effect, Citibank Sears MasterCard is enrolling you in what is called in the trade a Debt Management Plan (DMP). This is the business model for Credit Card Counseling Services (CCCS), which create DMPs for consumers who have several delinquent credit card accounts. The advantage of the Citibank Sears MasterCard offer is the program’s cost: $440.81 over the five-year period. Your total out-of-pocket outlay will be $12,420. This is a bargain in comparison to a CCCS DMP, which would cost you about $900 in fees for a five-year plan, plus interest that would total $1,100 or more. A CCCS DMP will outlay would be $15,000 or more depending on the interest negotiated.
You have two viable alternatives to the offer from Citibank Sears MasterCard. The first is debt settlement.
Alternative No. 1: Debt Settlement
Debt settlement is generally viewed as a more aggressive approach for consumers than credit counseling, and although it can be more risky, the potential savings achieved in debt settlement are often much greater. In debt settlement, the debt settlement firms negotiate with creditors to reduce the actual principal balance of their clients’ debts. Average negotiated settlements are around 50% of principal balance, with lower settlements seen by many consumers.
Because debt settlement firms negotiate on the principal debt, not the interest rate, many clients will have their debts resolved in three years or less. It is important to be aware, however, that during a debt settlement program no minimum payments are being made by the consumer. This will cause the face value of the debts to grow with over-limit and late fees. In addition, interest will continue to be applied and this additional amount should be calculated in to any savings estimations.
Assuming a 50% settlement amount, and approximately 20% in costs, a debt settlement program will result in a total out-of-pocket outlay of $7,000 to $9,000. The advantage of a debt settlement would be your completing the plan in about three years instead of five as proposed by Citibank Sears MasterCard.
Alternative No. 2: Bankruptcy
Federal law provides for two basic types of consumer bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 case, absolves the debtor of the obligation to repay most or all of his unsecured debts, such as credit cards, medical bills, and payday loans. Chapter 7 is probably the most straightforward and least expensive form of debt relief, while a Chapter 13 allows a debtor to establish a court-supervised repayment plan of up to five years to pay back part or all of their debts.
Unfortunately, bankruptcy has several serious downsides, which make it the option of last resort for many consumers. First, both Chapter 7 and Chapter 13 seriously damage the filer’s credit rating, which can make obtaining loans, renting an apartment, and even finding a job more difficult.
The Citibank Sears MasterCard offer is a good one if you do not mind the five-year term length, and is far superior to any offer you will find at a CCCS. Before you agree to enter the program, consider the pros and cons of debt settlement. Bills.com makes it easy for you to apply for this form of debt relief.
I hope this information helps you Find. Learn & Save.
Dealing with debt
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Auto loan debt was $1.50 trillion and credit card was $0.89 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Maryland, 16% have student loan debt. Of those holding student loan debt, 8% are in default. Auto/retail loan delinquency rate is 4%.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.