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One thing that's not mentioned in this article is that credit card companies will sometimes make last-ditch "clear your debt at a discount" offers before passin

One thing that's not mentioned in this article is that credit card companies will sometimes make last-ditch "clear your debt at a discount" offers before passing your debt on to a collection agency. This happened to me many years ago. In the wake of the '08 financial crisis, I'd lost my job abruptly and decided to go travelling. I'd accumulated a balance that was fairly substantial for me at the time (on the order of $10-15k, IIRC) and had been struggling to make the payments. I'd probably been 2-3 months behind on multiple occasions over the course of a year or so when a letter appeared that essentially said "we don't like you and we're going to close your account and pass your debt to a collection agency. However, if you pay off a portion of your balance in 4 monthly payments, and don't miss any of those payment dates, we'll wipe the rest." I don't recall exactly what the discount was, but it was very substantial. In total I only had to pay something like 30-40% of the balance that I owed, so it was a very good deal. I'm not normally one to skip out on my debts but this was a huge relief to have a chance to be free of that debt: I pulled a lot of strings to make those payments on time! True to their word, they wiped my entire balance and closed my account, and I never heard from them again (nor any collection agencies).

RobinL 3y ago
I suppose the problem is that if that becomes too prevalent, people will stop paying their bill in the hope that the credit card company will give them a discount
- b112 3y ago
  Poor credit can cost you dearly. Higher rates on everything, and a .5% difference in a mortgate rate is massive. It's a way to burn your credit for years, at great personal cost, so not likely that people will take the out without desperation.
  - standardUser 3y ago
    Higher rates on what exactly? Isn't it pretty much just mortgage rates? Plenty of people have no plan or desire to buy property within the next seven years.
    - Broken_Hippo 3y ago
      In the US, it also means things like getting denied for jobs and apartments. Car loans will be more: You might not be able to easily buy a new car. And that's not even getting into some of the other random things. You'll need to pay upfront to replace the washer that went out instead of financing - unless that financing is through one of the rent-to-own places (which still might be cheaper than going to the pay laundry). Same for, say, dental work: Some places used to let you pay in installments if you had adequate enough credit.
      - pjc50 3y ago
        How on earth can people be denied jobs for poor credit? You're not a creditor to your employer! Isn't this just the "social credit" system that people worry about in China, except privatised?
        krapp 3y ago
        Someone with poor credit may be assumed more likely to commit fraud or steal from the company. Someone with poor credit might also be assumed to be personally irresponsible and lazy, and more likely to slack off, ignore necessary details or cut corners. It isn't fair but in the US money carries moral weight, and many people assume the less of it you have, the worse of a person you are.
        jiofj 3y ago
        >It isn't fair but in the US money carries moral weight, and many people assume the less of it you have, the worse of a person you are. This isn't about money, this is about debt. Owing money around really does sound like something a bad person would do.
        r2_pilot 3y ago
        >Owing money around really does sound like something a bad person would do. Why would this be your default assumption? People can end up owing money for any number of moral reasons. I'd rather someone have 10,000 in debt because they borrowed to help someone with medical debt who would have died otherwise, than for that hypothetical person to die because of a lack of money. From there, it's easy to posit someone losing their job to be a caretaker for said hypothetical person. Et voilà, there's your unpaid debt yet (IMHO) for completely moral reasons. My opinion on debt has substantially changed once I encountered "Debt : the First 5,000 Years".
  - dkjaudyeqooe 3y ago
    Back in the early '10s I was reading a report from a guy who had stellar credit and the card limits to go with them. He ran up about $100,000 of debt on his cards on purpose and stopped making payments. He then approached his bank to settle the debt and negotiated a 60% discount. The account was marked "paid by customer" so it never appeared on his on his credit report as a default. He did get dinged for missing payments though, but was $60,000 richer.
    - joezydeco 3y ago
      Doesn't the IRS consider settled debt as income? Did he have to report that?
      - jjoonathan 3y ago
        Yes, but "defaulting on $100k as an income strategy" is a tier above the usual tax avoidance schemes in terms of risk, so I suspect he availed himself of those too and wound up paying very little tax on the $60k.
    - vikingerik 3y ago
      I have a family member who did something similar - perfect credit and defaulted on purpose. On a rental property, he was underwater on the mortgage at the time of the 2008 crash, so he simply stopped paying and let the bank foreclose and came out ahead that way. Trashed his credit rating but he never had any need for it, he had enough to buy his own house and car outright.
      - devnullbrain 3y ago
        AKA 'jingle mail'
      - LorenPechtel 3y ago
        aka Strategic default. There was a lot of that in states where the lender doesn't have recourse beyond reclaiming the house.
      - 3y ago
worldwidelies 3y ago
same experience, except it wasn't that simple. A family member told me I should settle with them, because that's what they did too. They wiped the balance and closed the account but the settlement stayed on my credit score for 7 years. I had a friend who was getting calls by a debt servicer and was making it seem like no big deal. I told my friend to ask the person about the 7 years, the person reluctantly admitted that his credit score will be flagged for 7 years.
- cavegirl 3y ago
  Might as well not pay it, if it follows you anyway
  - wizerdrobe 3y ago
    If you want to buy a home you have to pay it, even if you’re past the seven years window. Or at least that’s what USAA did to us. I had a credit card debt of about $700 after a failed startup that, when I called TD, I was unable to pay. It was “written off.” The debt was from 2015 and I was purchasing a home in the spring of 2023 and despite the balance having been written off 8 years ago, USAA demanded it be settled. So I spent 12+ hours in a Kafkaesque circle of hell trying to find someone to TAKE MY MONEY! Even the agents at TD found it sad-funny how desperate I was to pay and yet they seemingly had no system in place for me to pay off the debt I did owe them at some level. Ultimately, I got escalated so someone high enough up with enough tenure to find the right system to pay and a fax(!) was sent to USAA to settle that underwriting line item. Interestingly, USAA also managed to find that I had a $25 Comcast bill from something like 11 years ago, likely having missed a final bill on move out of some apartment. This wasn’t reported on my credit report, ever. Somehow they managed to find it and I needed to pay. I would love to know now about the underwriting process and how they find non-reported debts like my Comcast bill.
    - astura 3y ago
      They are reported somewhere, that's how they find them. USAA will tell you their source if you ask - you have the right to it under the FCRA. I've noticed sometimes some "weird" debts only show up on TransUnion and only TransUnion. If you're "checking your credit" with Equifax or Experian you won't see them. There is also "other" credit reports like Chexsystems.
differentView 3y ago
What bank was it? Have you tried getting a credit card with them since? If so, were you successful?
- Reason077 3y ago
  MBNA Canada. And no.
rcxdude 3y ago
This is because debt collection is a terrible deal: debt like this sells for a very steep discount, because debt collectors generally have a low rate of success of collecting. They essentially rely on apathy, ignorance, or compliance from the debtor, and if there's any resistance put up they essentially just write it off as it's no longer worth the effort (especially because debt collectors often don't have any actual evidence of a debt owed: they get a spreadsheet with names, addresses, and amount owed, and that's it. Something like that doesn't tend to stand up in court). So you probably gave them a better deal then the debt collectors.
- fullspectrumdev 3y ago
  Yeah, I’ve had a few things go to collections agency in Europe, most of them small debts from FedEx paying customs charges for a package delivered to me and never telling me they did, sending it right to collections agency. I have a policy of simply ignoring these.
- mrguyorama 3y ago
  > if there's any resistance put up they essentially just write it off as it's no longer worth the effort That's rarely the case. Debt collection agencies will absolutely hound you and your relatives, damn the laws, to try and milk value from you, for quite some time. They will then go to conferences and brag about how they have tricked people into claiming debts, the ways they have harassed people, and other atrocious things.
  - rcxdude 3y ago
    I mean resistance in the sense of actually knowing your rights and pursuing them with the legal system
    - incahoots 3y ago
      This, once you start parroting your rights as a consumer, they’re quick to back off.
- 3y ago
vuln 3y ago
In this case the difference between what you owe and what you settled at will have to be claimed as income on your taxes.
- deleted 3y ago
  [deleted]
kelnos 3y ago
As the article points out, the credit card company getting 30-40% was actually a great deal for them: if they had to sell your debt to collections, they probably would have only gotten 3-4% from that sale.
furyg3 3y ago
It seems like this is the solution: Anytime your debt is sold on, the debtor has the right of first refusal on the price it is being sold for. If the bank is willing to ding your credit sore and move on through parting with your $1000 of debt for $100, then you should have the opportunity to buy it at that price and be done as well.

RobinL 3y ago

I suppose the problem is that if that becomes too prevalent, people will stop paying their bill in the hope that the credit card company will give them a discount

b112 3y ago
Poor credit can cost you dearly. Higher rates on everything, and a .5% difference in a mortgate rate is massive. It's a way to burn your credit for years, at great personal cost, so not likely that people will take the out without desperation.
- standardUser 3y ago
  Higher rates on what exactly? Isn't it pretty much just mortgage rates? Plenty of people have no plan or desire to buy property within the next seven years.
  - Broken_Hippo 3y ago
    In the US, it also means things like getting denied for jobs and apartments. Car loans will be more: You might not be able to easily buy a new car. And that's not even getting into some of the other random things. You'll need to pay upfront to replace the washer that went out instead of financing - unless that financing is through one of the rent-to-own places (which still might be cheaper than going to the pay laundry). Same for, say, dental work: Some places used to let you pay in installments if you had adequate enough credit.
    - pjc50 3y ago
      How on earth can people be denied jobs for poor credit? You're not a creditor to your employer! Isn't this just the "social credit" system that people worry about in China, except privatised?
      - krapp 3y ago
        Someone with poor credit may be assumed more likely to commit fraud or steal from the company. Someone with poor credit might also be assumed to be personally irresponsible and lazy, and more likely to slack off, ignore necessary details or cut corners. It isn't fair but in the US money carries moral weight, and many people assume the less of it you have, the worse of a person you are.
        jiofj 3y ago
        >It isn't fair but in the US money carries moral weight, and many people assume the less of it you have, the worse of a person you are. This isn't about money, this is about debt. Owing money around really does sound like something a bad person would do.
        r2_pilot 3y ago
        >Owing money around really does sound like something a bad person would do. Why would this be your default assumption? People can end up owing money for any number of moral reasons. I'd rather someone have 10,000 in debt because they borrowed to help someone with medical debt who would have died otherwise, than for that hypothetical person to die because of a lack of money. From there, it's easy to posit someone losing their job to be a caretaker for said hypothetical person. Et voilà, there's your unpaid debt yet (IMHO) for completely moral reasons. My opinion on debt has substantially changed once I encountered "Debt : the First 5,000 Years".
- dkjaudyeqooe 3y ago
  Back in the early '10s I was reading a report from a guy who had stellar credit and the card limits to go with them. He ran up about $100,000 of debt on his cards on purpose and stopped making payments. He then approached his bank to settle the debt and negotiated a 60% discount. The account was marked "paid by customer" so it never appeared on his on his credit report as a default. He did get dinged for missing payments though, but was $60,000 richer.
  - joezydeco 3y ago
    Doesn't the IRS consider settled debt as income? Did he have to report that?
    - jjoonathan 3y ago
      Yes, but "defaulting on $100k as an income strategy" is a tier above the usual tax avoidance schemes in terms of risk, so I suspect he availed himself of those too and wound up paying very little tax on the $60k.
  - vikingerik 3y ago
    I have a family member who did something similar - perfect credit and defaulted on purpose. On a rental property, he was underwater on the mortgage at the time of the 2008 crash, so he simply stopped paying and let the bank foreclose and came out ahead that way. Trashed his credit rating but he never had any need for it, he had enough to buy his own house and car outright.
    - devnullbrain 3y ago
      AKA 'jingle mail'
    - LorenPechtel 3y ago
      aka Strategic default. There was a lot of that in states where the lender doesn't have recourse beyond reclaiming the house.
    - 3y ago

worldwidelies 3y ago

same experience, except it wasn't that simple. A family member told me I should settle with them, because that's what they did too. They wiped the balance and closed the account but the settlement stayed on my credit score for 7 years. I had a friend who was getting calls by a debt servicer and was making it seem like no big deal. I told my friend to ask the person about the 7 years, the person reluctantly admitted that his credit score will be flagged for 7 years.

cavegirl 3y ago
Might as well not pay it, if it follows you anyway
- wizerdrobe 3y ago
  If you want to buy a home you have to pay it, even if you’re past the seven years window. Or at least that’s what USAA did to us. I had a credit card debt of about $700 after a failed startup that, when I called TD, I was unable to pay. It was “written off.” The debt was from 2015 and I was purchasing a home in the spring of 2023 and despite the balance having been written off 8 years ago, USAA demanded it be settled. So I spent 12+ hours in a Kafkaesque circle of hell trying to find someone to TAKE MY MONEY! Even the agents at TD found it sad-funny how desperate I was to pay and yet they seemingly had no system in place for me to pay off the debt I did owe them at some level. Ultimately, I got escalated so someone high enough up with enough tenure to find the right system to pay and a fax(!) was sent to USAA to settle that underwriting line item. Interestingly, USAA also managed to find that I had a $25 Comcast bill from something like 11 years ago, likely having missed a final bill on move out of some apartment. This wasn’t reported on my credit report, ever. Somehow they managed to find it and I needed to pay. I would love to know now about the underwriting process and how they find non-reported debts like my Comcast bill.
  - astura 3y ago
    They are reported somewhere, that's how they find them. USAA will tell you their source if you ask - you have the right to it under the FCRA. I've noticed sometimes some "weird" debts only show up on TransUnion and only TransUnion. If you're "checking your credit" with Equifax or Experian you won't see them. There is also "other" credit reports like Chexsystems.

differentView 3y ago

What bank was it? Have you tried getting a credit card with them since? If so, were you successful?

Reason077 3y ago
MBNA Canada. And no.

rcxdude 3y ago

This is because debt collection is a terrible deal: debt like this sells for a very steep discount, because debt collectors generally have a low rate of success of collecting. They essentially rely on apathy, ignorance, or compliance from the debtor, and if there's any resistance put up they essentially just write it off as it's no longer worth the effort (especially because debt collectors often don't have any actual evidence of a debt owed: they get a spreadsheet with names, addresses, and amount owed, and that's it. Something like that doesn't tend to stand up in court). So you probably gave them a better deal then the debt collectors.

fullspectrumdev 3y ago
Yeah, I’ve had a few things go to collections agency in Europe, most of them small debts from FedEx paying customs charges for a package delivered to me and never telling me they did, sending it right to collections agency. I have a policy of simply ignoring these.
mrguyorama 3y ago
> if there's any resistance put up they essentially just write it off as it's no longer worth the effort That's rarely the case. Debt collection agencies will absolutely hound you and your relatives, damn the laws, to try and milk value from you, for quite some time. They will then go to conferences and brag about how they have tricked people into claiming debts, the ways they have harassed people, and other atrocious things.
- rcxdude 3y ago
  I mean resistance in the sense of actually knowing your rights and pursuing them with the legal system
  - incahoots 3y ago
    This, once you start parroting your rights as a consumer, they’re quick to back off.
3y ago

vuln 3y ago

In this case the difference between what you owe and what you settled at will have to be claimed as income on your taxes.

deleted 3y ago
[deleted]

kelnos 3y ago

As the article points out, the credit card company getting 30-40% was actually a great deal for them: if they had to sell your debt to collections, they probably would have only gotten 3-4% from that sale.

furyg3 3y ago

It seems like this is the solution: Anytime your debt is sold on, the debtor has the right of first refusal on the price it is being sold for. If the bank is willing to ding your credit sore and move on through parting with your $1000 of debt for $100, then you should have the opportunity to buy it at that price and be done as well.