Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).
Dear To Her Credit,
My car lease just matured, so I turned it in and bought another car. I was over in mileage and owed about $4,000. I am also responsible for the disposition fee and the sales tax. My dealership was kind enough to pay for not only my last payment, but one-half of my mileage fees as well. I am now stuck with about $3,000 to pay, which I was not prepared for.
I asked the finance company if I can make payments, but they will only accept payment in full. Will this negatively affect my credit report while I am working on collecting the funds to pay them? -- Melinda
Dear Melinda,
Those are pretty harsh fees to pay after making payments for the full term of the lease! I'm not sure I would be calling the dealership "kind" at this point, as you are. Did your lease contract make clear to you what could happen at the end of the lease?
Yes, this bill probably will negatively affect your credit history unless you take action immediately. Here are some options, in order of preference:
You can request that you be put on a "hardship" payment plan, according to Georg Finder, independent credit evaluator at creditdamage.com. "Get the terms in writing," he recommends. "Make one of the terms that they will not report the arrangement to the credit bureaus, except as a loan, if necessary." I know you already asked if they would accept payments, but they may be willing to work out another plan if they know the full amount is not forthcoming.
Look for a low-interest source of money, such as a home equity line of credit or a family loan.
Consider borrowing from your own 401(k) plan, but only if your job is very secure and you're sure you won't quit before you pay back the loan. (If you quit or get laid off, you'll have to pay the loan back immediately.)
You can ask if the leasing company will accept a credit card payment, if you have enough available credit.
Taking a credit card advance to pay off the debt would be a last resort. You may have to pay a transfer fee, plus the interest rates are usually higher on cash advances than on purchases.
If you can't find a low-interest solution, this bill could get very expensive. However, according to Finder, the damage to your credit for non-payment to the leasing company can cost you more. Even if you have to pay high interest rates and transfer fees, he says, that will cost less in the long run than getting a deficiency judgment on your credit report. A bad mark on your report can make it harder for you to get reasonable interest rates in the future, much like a minor car accident can cost you more in insurance rate hikes than the damage to your car did.
I'm glad to hear you purchased your current car, rather than entering into another lease. For most people, buying makes more sense than leasing. At least when you buy a car, you don't have the shock of additional fees after you make payments for years.
You're doing the right thing by dealing with this immediately. Many people are overwhelmed by unexpected setbacks, so they push them aside, or they even stop opening envelopes from certain creditors. Then, the bill only grows, plus their credit is damaged for years. When they can't get credit at decent interest rates, it's harder to get out of debt and maintain a clean record. It's a vicious cycle!
Everyone has setbacks, but with determination, you should be able pay this off in a relatively short period. You can get past this, and you can save your credit.
Sally Herigstad writes about women and credit every week for CreditCards.com. Herigstad is a writer and finance consultant for MSN Money, a personal finance software product. She is also a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Her Web site is http://helpicantpaymybills.net. Sally Herigstad lives in Kent, Wash., with her husband Gary. They have two grown children, Valia and Grant.
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
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