Settle vs Paid in full.

[celebrity0608]

I have another question for you guys. My wife and I are hoping to buy a house anywhere from 1-2 years from now depending on when we can get the credit scores up.

So, my question is...with a 1-2 year goal to get it cleaned up....should we go with the settlement offers or pay them in full?

As of right now, we are trying to pay everyone in full. I know this helps your score more than settlements will, and we do feel better knowing that we have paid things in full.

Thanks in advance!

[project15]

Pay it in full. Not sure what effect simply "settling" has on your credit, but if you're trying to clean it up, I would make sure everything is SQUEAKY clean.

[maat55]

Originally Posted by celebrity0608

I have another question for you guys. My wife and I are hoping to buy a house anywhere from 1-2 years from now depending on when we can get the credit scores up.

So, my question is...with a 1-2 year goal to get it cleaned up....should we go with the settlement offers or pay them in full?

As of right now, we are trying to pay everyone in full. I know this helps your score more than settlements will, and we do feel better knowing that we have paid things in full.

Thanks in advance!

The answer is simple. If you are able to PIF, you should PIF. If you cannot PIF, then settle. Also, if PIF pushes back your home buy, so beit.

You should pay your debts, save up an EF, then save up a down payment in that order. It may take a little longer this way, but it's the best way to do it.

[celebrity0608]

Thanks again for the great advice! We will continue paying everything in full.

[momof1in150]

Pay In Full. If you settle the difference will be counted as income and you will pay taxes on it at the end of the year.

[LivingAlmostLarge]

Yep any settlement the forgiven income comes as a 1099 income, so be prepared if you do decide to settle.

[KellyJef]

Pay in full.

You ran up the debt so you should pay it -- like the rest of us have to.

[celebrity0608]

The debt is from my wife (or will be in less than 2 weeks). She made some mistakes back in her college years, and when you marry the person...you marry the debt.

We were paying in full, but I hear all these people (not you guys) saying "oh you know that you can settle for just a fraction of the total debt". I had no idea that the difference was taxed as income. I will definitely tell them that the next time settlements come up, because I have gotten funny looks for saying I wanted to pay it just because we should.

[noppenbd]

It will also kill your credit score to settle with a CC company unless the CC company agrees not to put it on your report.

[Merch]

I have to first commend you. Too often today, people are looking for the easy way out and the quick fix without taking into consideration the ethic and morality of what they are doing. They also constantly blame others for their issues,

I say belly up to the bar and pay in full. Why? Because it’s the right thing to do. Plain and simple.

Also if the debts are under your wife, you could purchase the house under your credit score.

[celebrity0608]

Originally Posted by Merch

I have to first commend you. Too often today, people are looking for the easy way out and the quick fix without taking into consideration the ethic and morality of what they are doing. They also constantly blame others for their issues,

I say belly up to the bar and pay in full. Why? Because it’s the right thing to do. Plain and simple.

Also if the debts are under your wife, you could purchase the house under your credit score.

Thanks.

Hmm, So would we be more likely to get a better rate using my score alone or fixing hers and using both of ours? I don't know how things like income and combined income work when applying for the mortgage.

[money2009]

As others have stated IF you can pay in full and still do things like pay the bills and groceries then pay in full.

If doing a PIF prevents you from doing those things then settle. If there are some late payments etc on the accounts (which I'm guessing by the questions you're asking) I'd also see if they would be willing to remove some those items by a PIF. You may get lucky.

[vsjhoc]

If you apply for a mortgage using both your incomes, the lender will likely look at each of your 3 FICO scores (in other words, 6 scores total). The one FICO score they will consider is the lower of the 2 middle scores.

For example, if your scores are 650, 725, 730 and hers are 580, 620, and 650, they will use 620 as the score to determine the APR and terms of the loan.

[b4freedom]

I'd actually disagree with most people here. If they offer you a settlement of at least 30% off then take the settlement. I’d personally aim for 50% off. As long as your debt is settled, everything negative on your report will drop off after 7 years except for bankruptcies and certain types of judgments (10years).

And, if you're credit is completely destroyed, it'll take more then 1 to 2 years to rebuild. It'll take 5 to 7 years.

So, you should save every penny you have to buy a new house so that you can put down more then 20%.

What I think you should do:
You should go house shopping. Don't buy one. Just look. Figure out what kind of house you want and how much it'll cost you. I don't know where you live and how much houses cost in your area, but let's assume that its $200k (for the sake of my point) and you could get a 30 year fixed mortgage at 7%. That's 1330.60/month for your mortgage. But don’t forget the property taxes, insurance, and everything else. You should figure that all out and come up with an amount that a new house will cost. Let’s assume the taxes and everything else is $700/month to bring your total to $2030.60 ($1330.60 mortgage + $700 taxes and everything else). Now, pay off your debts and then open a high yield savings account with an online bank. Every month, have $2030.60 transferred into that account. In other words, pretend you already own a house and you’re already paying for it. Let’s assume that on average your account returns 3.5% interest on your money. After 7 years when everything negative drops from your credit you’ll have $192,900 in the bank to put toward your $200k house. And, don’t worry about houses going up 10%/year in price over the next few years. We’ve seen an end of that for awhile.

[noppenbd]

The answer really depends on how much debt we are talking about, and what the settlement offers are, compared to your income and expenses. OP needs to post those details before we can give more than generic answers.