I live in Massachusetts, am unemployed and owe $40,000 on 4 credit
cards plus a personal loan.  I haven?t made any payments in 2 months. 
I own a condo worth $240,000 and owe $60,000 on the mortgage.  I have
some money in the bank and just got a large credit line against my
condo.

Question: How do I best pay off the credit cards - can I get discounts
for paying them off?  Do I call and make an offer or wait for them to
sue me and make an offer on the resulting judgment?  My understanding
is that people pay off judgments at a big discount.  Should I have
someone represent me?

Charlie~

It's always better to keep in friendly contact with your creditors. If
you can help it, do not let the account go to a collection agency;
they will be much less willing to work with you.

The first thing to do (if you haven't already done it) is to call all
your creditors and explain your situation. Let them know that you want
to make good. Then ask if you can settle your account.

Most experts do not recommend that you use a debt management company
to do this for you. It's easy to do yourself, and will save you
unnecessary charges.

Usually, if you're a few months behind, credit card companies are
willing to negotiate. *Some* money is better than none, from their
perspective. Do let them know you're out of work. Many times, you can
negotiate to get 25-50% off the amount currently due. Be sure to also
negotiate how the "pay offs" will appear on your credit report.
Ideally, they will just mark the account as "paid," with nothing
negative noted.

If it's legal in your state, record the phone conversations you have
with your credit card companies. (To learn about your states laws in
this regard, visit "United States Telephone Recording Laws:"
http://www.callcorder.com/phone-recording-law-america.htm )At the very
least, get the terms of the settlement in writing. Some companies are
dishonest enough to let you pay, think you no longer owe them, then
send your account to a collection agency.

If your accounts have already gone to a collection agency, settle as
soon as possible. Although it's unlikely they will sue you (unless the
individual loans are rather large), they could potentially sue.

If you can avoid it, do not get further into debt with a credit line
against your home. You'd be better off in the long run selling your
home, getting out of debt, then rebuilding your credit.

For more information, check out "Settling Your Debts:"
http://www.creditinfocenter.com/debt/settle_debts.shtml

"Get Out of Debt:" http://www.fool.com/seminars/sp/index.htm?sid=0001&lid=000&pid=0000

and

"What Debt to Pay Off First:"
http://www.bankrate.com/brm/news/cc/19980713.asp

Best wishes,
Kriswrite

RESEARCH STRATEGY:
Researcher's personal knowledge
Google Search: "credit report" "credit card" "pay off" and "credit card" "pay off"

Please be cautious in dealing with the credit card representatives. 
My own experience was that when I inquired about whether they would
accept a lower sum to pay off the cards, each rep said that was
perfectly acceptable.  They then assured me that each card account
would be recorded as paid in full.  So I paid each the discounted
amount and they in turn accepted each account as paid in full.  Each
card account was closed because when I had fallen behnd I had
forfeited the use of the card.  What is important and I urge you to be
cautious about is that each credit card firm, once they'd been paid,
informed the credit reporting agencies that a lower sum had had to be
negotiated in order to clear the debt.  And as a result my credit
status was in ruins.  Had I known this I'd have continued struggling
to the point where I could have paid off the full amount of each debt.
 I suspect that the reason the reps were happy to negotiate a lower
payoff is that they were working on commission and were happier to get
an immediate commission on a lower amount than deal with the time and
effort of continuing to negotiate until the full amount was paid, or
lose everything if I filed for bankruptcy..  So please think twice
before agreeing to any lesser payoff.

This is why it's important to get the deal in writing.

Kriswrite

You can write on the back of the check you send a notice stating that
depositing the check constitutes a legal obligation for them to report
your account as "paid in full" instead of "charge off".  Just make
sure you can get the original check back from the bank, and that you
leave a big enough paper trail to cover your butt.

You might find some use in this article on paying off debt:

   http://www.efficientmarket.ca/article/Pay-Off-Your-Debts

If you can't get the card agency to accept a lower payment you may at
least be able to demand a lower interest rate; or your bank may
advance you a loan instead.

First, not all debt consolidation is a "scam".  I am sure there are
debt settlement companies that are a "scam".  There is a scam company
in every type of business.

Second, the "paid in full" works if you there is some good faith
dispute about the debt and the creditor must have reasonable notice
that the check is intended to be used in full satisfaction of the
debt.  In other words, if I get my power bill next month and write a
check for $1.00, the balance is still owed even if the "paid in full"
is written on the back of the check and they cash it.

Third, I think you are making a mistake paying $0.  Pay something. 
Make an effort to show that you want to resolve it but you are in bad
times.  I think they will work with you more.

Good Luck
Paul