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.
Dear Opening Credits,
Hi. When I was about 18 years old, my dad added me as an authorized user on his credit card account. After a couple of years, I saw it wasn't showing up on my credit, so we had the credit card company make me a co-applicant. That got the card to show up on my credit report. I was the only one using it and moved to a different state. I was on time for five years and never late on a payment. I ended up losing my house to foreclosure and have quite a few credit card balances because I didn't manage my money well.
I tried to call the banks to see if they would settle for 50 percent of what I owed. They told me that they wouldn't talk about that until I was 90 days past due. I am almost 90 days past due and found out they have been harassing my dad because he is the primary account holder. I would love to settle that card off first, but it seemed like they scared the crap out of my dad, who has perfect credit. He said if they lower the interest, he will help with making the payments. They told him that they couldn't do that, and that he should be able to bring the account current. They also said they got tired of me not answering their calls. So now they aren't concerned with me, but they want the money from my dad because he is the primary account holder.
What should my next step be to getting this debt cleared if I can get ahold of 50 percent of the balance? I don't want to pay that and have them still go after my dad for the rest of it. I don't know what I should do. I want to clear this card and deal with my stuff after, but I need to get them off my dad's back. -- Del
I'm sorry to say that what you want is not the most important thing right now. You've got a bad situation going with both your dad and your creditors, and their desires and demands are going to have to take priority -- pronto.
It's understandable that you'd like to pay half of what you owe and wipe your hands of the matter, but that's not what your credit card company is accepting at this point. Heck, it sounds like you don't even have the cash to offer right now. Besides, you charged a certain sum, and that's what you need to repay. You've damaged your father's credit enough, adding a settled sum to the mix will only hurt him more.
The good news is that it appears the account in question is still with the original credit card company rather than a collection agency. If your creditor had written the account off and sold it to a third party, it would be yet another black mark on your reports. They've even said it's possible to bring the account current, which is really wonderful. And that's what I want you to do. Here's how to get back on track and undo some damage:
Develop a feasible payment plan. Make the minimum payments to the rest of your accounts and offer most of your available income to this one. If you aren't earning enough to make substantial payments to this account, either cut your spending down to bare bones or get a second job so you can. I'd like you to eradicate that debt in less than a year.
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Say it with money. Promises and excuses -- credit card companies have heard them all and not just from you. Give it another try, though, but with actions rather than words. You need to make sure that your creditor does not write the debt off and send it to a collector. It's on the edge, so you have to act fast. Write them a letter saying you intend to pay the account in full and propose a monthly payment, then include a certified check or money order in that amount. Will they accept it? Of course! Sure, they're weary of dealing with you, but what they really want is the money.
Regain credibility with your father. If you don't have the cash to send to keep it current, I'm fine with you accepting your dad's offer to help with a payment or two. To give him a refreshing sense of security that you will repay him, offer some real or sentimental property of yours as collateral. He's got to know that you are serious. Also, I suggest that you and your dad close the account as soon as it's repaid. (It's usually hard to close co-signed accounts when a balance remains).
As for your credit history, when lenders look at a credit report and see evidence of poor borrowing behavior, they typically assess the recency, severity and frequency of the problems. The damage is clearly fresh, but in a couple of years, it will be old news. Borrow and repay responsibly from this point forward, and you'll be fine. Being 90 days late on a payment is bad, but it's not the worst thing in the world. You can recover by always making on-time payments. You didn't mention if this is the only time you've allowed an account to go delinquent, but if it is, you can relax a bit.
After you've repaid that and all other accounts, my final piece of advice is to step away from the cards until you feel confident that you will use them well. Do not have your father or anyone else co-sign on any more loans or lines of credit. You're on your own, Del. Rebuild your credit slowly and independently.
Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.
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