Photo: Dewayne Neeley on flickr
There is a smart way to default on a loan, but few debtors are savvy enough to pull it off.It’s called negotiated debt settlement.
This route is better for your credit than outright bankruptcy, and it’s better for your wallet than making payment you can’t afford. But most debtors never reach this option because they cave after months of harassment.
The following excerpt from The Unfair Trade by Michael J. Casey describes a smart strategy:
What the bank desperately wants to avoid is a six-month cut-off date. If payments aren’t received by then, it must write off the entire loan on its balance sheet, recognise the loss, and then fight with other unsecured creditors over what could be a measly payout from a drawn-out bankruptcy. That’s why it resorts to the telephone equivalent of saturation bombing during the first 90 days. “They know what’s going to drive you nuts and that you are going to give them $60 just to shut the phone up,” said Bonadio. If just one of those calls hits its target and prompts a minimum payment, the clock kicks back to six months and the bank is in the clear. But if the customer reaches the fourth month with no payment, the game changes. Out of the blue, a settlement letter will arrive from the bank, offering to accept perhaps 50 or 60 cents on the dollar. The savvy debtor will politely demand something more generous. And the bank, weighing the cost of a lower settlement against that of a charge-off will routinely concede. In Bonadio’s case, he settled with Citibank, JPMorgan Chase, and Bank of America for an average 31 per cent of the total, a saving of $37,379.
There’s also a secret weapon for your battle:
Bonadio is one of the few who outwitted the system. Why? Not because of his steely resolve, but rather thanks to the help of yet another digital innovation: caller ID with ring controller. With that little box, he could program the phone to not ring whenever calls came from a number associated with one of the banks’ debt collectors. The machine, he says, kept him sane.