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). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
Dear To Her Credit,
I am being sued by my credit card company, and I have to
appear in court. I don't know what to do. I've been unemployed
for over two years (although I just interviewed for a great job, so I'm keeping
my fingers crossed). I have no money to pay this with.
I called the bank a couple of times and told them my
situation, and that I would start paying again when I got a job, but I didn't
get anywhere with them.
This all started a couple of years ago when I got a credit
card with a $500 limit. I spent the $500, but then I lost my job when my
workplace closed, and I couldn't make the payments anymore. With interest and
late fees, my balance in two years has gone from $500 to almost $2,500 without
me spending another dime.
Can they really charge me that much? What can I do? Is there
any point in going to the court date? -- Lori
Dear Lori,
Yes, absolutely -- you must attend the court date. The most
important reason is that if you don't appear in court, the credit card company
wins by default. Assuming the debt is correct, that may not seem like a big
deal. But the additional fees and the means they can use to collect their money
are still in play.
The other reason to go is that you'll feel better after you
do. Speaking from experience, there's something about hiding out from our
problems that makes them grow larger in the night. Facing problems in the
daylight is the only way to shrink them back down to size and eventually get
rid of them altogether.
Going to court can sound intimidating. We've seen court
scenes on TV, with a formal courtroom, a judge wearing a robe, witnesses and
all eyes upon the defendant. This isn't anything like that. Chances are, you'll
meet with a representative of the bank in a plain room at the courthouse.
Anyone you happen to see has troubles of their own and isn't even curious about
what you're doing there. It's not that the courthouse is a cheery place. It's
more on the level of going to the department of motor vehicles -- boring, all
business and soon to be over with.
After you're sworn in, you'll have to fill out more
paperwork and answer questions. The bank is looking for money, especially
wages. You don't have any, and they can't garnish unemployment benefits, so
for now the debt is uncollectible and on hold.
The bad news is that yes, they probably can charge you that
much. It's not unusual for a credit card bill to double or triple when late fees and penalty interest rates start piling on. This is why it is so important to keep up
with minimum payments on credit cards. The minimum payment on a $500 balance
was probably between $15 and $20 per month. That's a small price to pay to
avoid harsh penalties like these.
If you have any other debts, especially if they are in
danger of going the way this one did, I recommend you find a nonprofit credit counselor immediately. Some people avoid counseling because they think it's
just about budgeting, or they assume they don't have enough income to work
with. But a good credit counselor could probably have stopped this from going
to court and racking up legal fees. At this stage, a counselor can help you see
your options, make the best use of what you do have, and keep you from getting
further into trouble. Be sure to use a
reputable agency affiliated with the National Foundation for
Credit Counseling or the Association of Independent
Consumer Credit Counseling Agencies.
Sometimes showing up is the main thing in life -- and the
hardest. I hope it goes well, and that soon you get the new job you want. Best
of luck!
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: October 29, 2010
Three most recent To Her Credit stories:
Should one spouse take on full debt load? – A married couple with joint card debt wants to transfer the balance to a lower rate card. Should the better credit score spouse take on the burden alone? ...
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