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Putting off dealing with debt problems will only make them worse

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question for the CreditCards.com expert

Dear Opening Credits,
I'm a student in debt with two credit cards. I get called by three different bill collectors daily -- at least 10 times every day. I have no money to pay my bills. My plan is to take care of my debt when I'm finished with school. I'm just worried the collectors will take what little money I have to survive while I'm in school full time. I told them my situation two years ago, and it's just gotten worse. Please help! -- Amanda 

Answer for the CreditCards.com expert

Dear Amanda,
I understand that you are mired in schoolwork and would prefer to delay your financial obligations until you're in a more prosperous place, but it's not a reasonable request. Think about it, Amanda. If you loaned money to a friend on the condition she would repay you in a certain way and by a precise date, would you accept a two-year delay because she had better things to do? Probably not. Nor would a creditor.

Though I am very happy to help, I'm afraid what I say may not be what you're hoping to hear. First, let's review the timeline of what happened:

  1. You applied for a couple of credit cards and the credit card companies approved your applications.
  2. You signed the paperwork, thus forming a contract. You agreed to use the cards according to the terms and conditions specified by the creditor.
  3. You went shopping! To acquire the items, you used the credit cards. You didn't actually pay for them, though. Your credit card companies did.
  4. As per the contract, you were to repay the loan by making at least the minimum payment by the due date. For whatever reason, you did not. 
  5. You continued not to pay.
  6. After months of letters and phone calls, your credit card companies eventually gave up and charged off your debt. 
  7. Collection agencies bought the accounts for a fraction of the balance. You now owe the collectors.

So now what to do? To begin, toss out the idea that you are going to wait to deal with your debt problems. The sooner you get on the ball, the better. To inspire you, know that if the statute of limitations for lawsuits on delinquent debt hasn't lapsed, you can be taken to court and sued for the money. Then your problems will really deepen.

Getting chased by collection agencies is no fun, but making you miserable is their job. Because they don't give a hoot about what you think of them, they are using every means available to get you to cough up the cash -- not the reduced sum they purchased your accounts for, but the balance as you last left it. Well, sort of. Interest and fees have been accumulating since you last looked. They spent money to buy your debt, and they're going to do what it takes to not just recoup their investment, but also turn a profit. However, according to the Fair Debt Collection Practices Act, it is illegal to call you many times a day. Tell them you know the law and that they must stop the harassment.

Now pay the debt. How? Well, you can get a part-time job and save every extra dollar. Or maybe you can sell something that has value, such as a car or bicycle. You may even ask your parents if they can help out and then owe them instead. (Use caution here. While your parents can't add negative information to a credit report, they can make life pretty unpleasant if you renege.) You may even try negotiating a settlement. Remember, they bought it at a discount and could be willing to go down a bit, if it means an immediate chunk of change.

Finally, consider your credit report. It was dented when you first missed a payment, beaten when the credit card company charged the debt off and pummeled when it went into collections. You are going to want to have a "zero balance due" on the report before graduation. This way, you can seek a job and find an apartment without it shouting, "Hi, my name is Amanda, and I don't pay my bills."

See related: 9 tips for jobseekers with bad credit, 10 things you must know about credit reports and scores, Video: The basics of debt settlement, Dealing with tactics of bad debt collectors, 5 federal laws that protect cardholders, Statutes of limitations on credit card debt across the nation, Tips for dealing wtih collection agencies, Attention: Terms are changing

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Published: March 17, 2010


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