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Jana writes in with a credit emergency. She’s been following Get Rich Slowly, and is learning how to handle her own personal finances, but she has a friend who is in a predicament beyond her realm of knowledge. (And beyond mine, as well.) Can any of you offer advice? She writes:
Kerry is a 23 year old living in Utah. She works a full time job, pays rent on an apartment, and has a car payment. She has about $6000 in debt that she has been managing over the past couple of years. However, this week she received a letter regarding a credit card she forgot she had while in college in Georgia. I guess the debt collection agencies had been sending her notices to her old dorm address, and finally hunted her down. She now owes an additional $3300 on this credit card in two weeks or she goes to court. Going to court means losing her car and having her credit ruined.
Kerry is considering one of those loan places that charge a huge amount of interest. I know this is a cringe-worthy solution and I am wondering if you are aware of any legitimate loan places or programs that could help her overcome this $3300 debt and help her begin paying off the other $6000. She’s pretty much month-to-month on the paychecks. Her family situation is such that she is uncomfortable asking them for money.
I’m at a loss, but I REALLY don’t want to see her go to one of those skeezeball loan places. Any thoughts at all would be extremely appreciated, and thanks so much for reading.
It seems to me that it is to the credit card company’s advantage to work with Kerry. They want to get their money, and they’d rather not have to pay a collection agency or lawyers to do so. I recommending calling the credit card company directly to explain the situation. She should be completely honest, and ask them to work with her. This may not work, but it sounds as if at this point she has very little to lose.
If this fails, she might want to speak to a credit counseling service such as American Consumer Credit Counseling. I’m not sure how effective these places are. But again, it cannot hurt.
Standard advice for debt elimination is based on having time to slowly pay the debts down. What can you do when you’re faced with a credit emergency?
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February 26th, 2007 at 5:17 am
Contacting the credit card company will probably not work as they have probably sold the debt (at a big discount) to a third party and no longer have any interest in it.
Don’t go to a loan shark.
Try http://www.prosper.com, which is perfect for this type of situation. It’s a site that matches people who need money with people who have money to invest.
February 26th, 2007 at 5:47 am
I was going to suggest prosper.com also.
It may be an unpopular idea, but in tough situations we sometimes have to do things we wouldn’t otherwise consider doing: surf the debt. Is there another credit card that the $3300 can be transferred to? Ask for a credit line increase on an existing card? Get a personal loan from a legitimate bank? Some combination of these to add up to the total needed?
February 26th, 2007 at 6:05 am
Did she provide the proper mail forwarding to the Post Office? Did the Credit Card company not update its files? These are avenues which would provide her a little bit better defense.
I suggest a credit counseling service, asap.
February 26th, 2007 at 6:15 am
Yes, definitely work with whoever owns the debt first — they almost certainly don’t want to go to court over $3k and they don’t want to take her car. She should explain what happened and be completely honest about her ability to repay. I would be very surprised if they did not offer her a much better deal than any payday loan provider.
February 26th, 2007 at 6:19 am
With all the recent discussion about Prosper.com, maybe she could secure a loan in short order on better terms that way.
February 26th, 2007 at 6:20 am
I also am leery of the skeevy loan places. I concur with all the previous suggestions–call the lender and/or collection agency who now owns the debt and offer a settlement/explain the situation. Don’t let them bully her into paying with a post-dated check or anything like that while she’s dealing with them. Check out prosper.com for a small loan to cover the amount of her settlement. Definitely consider credit counseling but do a lot of research on whichever company she goes to with that–a lot of them have reputations as bad as the skeevy loan places. Consider surfing some or part of the debt, IF she can manage to pay it off before losing the 0% interest rate on the new card.
Also…consider going to court. Going to court does not automatically mean that she’ll lose her car or get her wages garnished. A sympathetic judge can work out a payment plan that she can handle, if she goes in with a budget and a plan to pay back her debt, honesty and contriteness, and a pledge to work hard. It really might be worth a try.
I’d recommend checking out the Credit Board forums as well.
February 26th, 2007 at 6:33 am
I would try to contact the credit company and see if they will play ball or not.
My aunt used to work in debt collection and she always said she was always after some form of repayment. She really wasn’t too picky on how much as long as they were trying to pay something. So try offering $30/month or something and see what they say. If the person on the phone is being unreasonable ask to speak to their supervisor.
Also make sure to get the name and direct line of anyone you speak to prior to getting into making a deal. That way you can follow up on any agreement made. Perhaps the most important thing is do NOT become upset on the phone. Keep cool and hopefully things work out.
CD
February 26th, 2007 at 6:36 am
If she goes to Court, she’ll need the following:
1) She’ll have to get a Pro Bono attorney. The court can appoint one to her. It’s better than representing yourself.
2) She’ll need paystubs, paychecks, and her credit history with the other cards and balances to show that she’s managed that debt and is slowly whittling it down.
3) She’ll need a plan (verifiable, income documents please) to repay this loan too.
4) She’ll need to appear very sympathetic, explain why she doesn’t want to take out another loan to pay for debt, and is moving her life forward.
No reasonable judge will declare in favor of the plaintiff and order her car seized at that point. The judge will most likely rule on a credit management proposal to be hashed out between the two parties, and stern warning that if she does not abide then her car, etc, will be seized.
February 26th, 2007 at 7:11 am
This is bogus. The same story with a different name was posted to Consumerism Commentary yesterday.
Either that or the friend can’t keep her story straight because it is really her.
February 26th, 2007 at 7:12 am
Agreed…it seems odd to take someone’s car when you want them to repay you for what’s likely going to be more than the vehicle may be worth.
It’d be a bit tough to work with no transportation.
I agree with Canadian Dream, but if you feel that you’ll get upset talking to a debt collector, perhaps get a friend on the phone with you to offer support…someone not emotionally involved with the situation who can provide a bit of help with negotiations.
February 26th, 2007 at 7:12 am
I’m the friend, and I just wanted to say thanks to JD and everyone for your advice — it’s a little less freaky now that there seem to be other options, and I really appreciate the comments. Glad to hear the collections people might be willing to work things out. I’ll pass along to Kerry and we’ll see what happens…and if anyone has any other thoughts, go for it!
February 26th, 2007 at 7:28 am
Here’s the deal… she is most likely not going to go to court in 2 weeks. The reality is that these are credit card collectors and they are most likely lying through their teeth. They are trying to get an emotional response from her so that she will do anything to get them their money.
Depending on how old the debt is, they will probably settle for 50 cents on the dollar. If she can somehow come up with $1500 (how about working an extra job?), they will probably settle the debt for that amount of money. In the meantime, ignore the credit card collectors. Her credit is most likely already trashed, and they won’t take her car unless it just has a ton of equity in it.
The main thing to realize is that the collectors are playing a game to get her emotional. Don’t fall for it. Go about it methodically and don’t do anything stupid! Stay away from the loan place!!
February 26th, 2007 at 7:44 am
IANAL, but she should probably talk to one. W.C. Varones is probably correct that she now owes the money to some third party.
Caveat Emptor has some advice in this article http://sjglover.com/blog/?p=115
February 26th, 2007 at 7:47 am
I don’t think anybody mentioned this, but she should have the collection agency verify the debt in writing. This can buy her some time, and it could very well turn out to not even be her debt!
The collection agency will work with her to set up affordable payments. Unless there is something not mentioned, they have no reason to take her car. Finally, her credit score is likely already trashed, so might as well work with the agency to negotiate a settlement. It might be reduced 25-50%. In the end, she’ll still have to wait seven years to rebuild her score.
Oh, and once she does verify/negotiate a settlement and eventually pay it off, make sure she knows to retain the proof that it was paid. Collection agencies have been known to go after people for debts they already settled and paid in full. Some people just pay them anyway!
February 26th, 2007 at 7:50 am
also forgot, $9300 is *not* a huge amount of debt. yeah yeah, any debt at all is too much debt, but even if she puts the $3300 on her other credit card, $9300 is, sadly, about average American household debt. Maybe in some places its even better than average.
February 26th, 2007 at 7:52 am
I agree with the other comments who said not to get a “skeevy” loan, but what they failed to explain is why: Kerry is already living paycheck to paycheck. If she can’t pay her existing debts, it makes no sense to incur new ones.
Although she’s “uncomfortable” asking family (and/or friends) for money, that’s the unfortunate position in which she now finds herself. Not too proud to ask strangers on the internet for advice but too proud to ask family for actual help? (There may be other explanations than ‘pride’ but unless asking family is impossible, do it.)
February 26th, 2007 at 8:12 am
Another thing, as long as she hasn’t made any promises to pay, there is a possibility that she won’t have to pay a cent. How old is the debt? When did she last pay on it? The first thing to find out is what the statute of limitations is in Georgia, and then not promise a penny to the collections people.
It also sounds like a scam I have heard of, where collection agencies buy old debts that may have already been written off, then try to get the money. It sounds very suspect indeed, and very much against the law. Collections people are under a law that they can’t unduely harass, and threatening to take away a car, ect… sounds like harassment to me. Plus, it’s just plain not true that they can do it.
February 26th, 2007 at 9:55 am
I would advise against any Consumer Credit Counseling service. As far as your credit is concerned, involving one of them is the same as declaring bankruptcy.
Call the credit card company and say this is the best I can do: $x dollars per month. If you take me to court you’ll force me to declare bankruptcy and you’ll get nothing because I owe these 10 other people $X.
February 26th, 2007 at 10:07 am
As everyone else said, call them and they’ll work with her. While that’s going on, look into getting a loan at Prosper.com. The highest rates they charge is 29% (often quite a bit lower), the PayDay loan places often charge up to several HUNDRED percent interest when annualized. Avoid, at all costs.
-arebelspy
February 26th, 2007 at 10:19 am
Getting more debt to pay off existing debt is not a good idea. She’s unlikely to lose her car unless it’s outrageously expensive and she’s declaring bankruptcy. If she indeed has a court date the judge is likely to simply order her to pay, and an arrangement can be worked out. You’d be a fool to pay the whole amount, especially if they’ve already sold the loan. If your credit is already trashed and they don’t think you’re going to replay they’ll take a settlement. If you don’t have the money now, work out a payment plan, but whatever you do DO NOT give them access to your bank accounts. They will take you for everything you have.
And above ALL else. BURN THOSE CREDIT CARDS until you can use them responsibly.
February 26th, 2007 at 10:19 am
I agree with most of the advice above, though how someone could unintentionally “forget” about an existing credit card debt seems unbelievable to me. If it is true, I would suggest:
- Verify that the debt is real by calling the credit card company
- Check your credit score for free online (search the web for it)
- Take out a loan on prosper.com and be sure to pay it back
- See whether your existing credit card company will allow a 0% balance transfer to buy you some time.
Good luck.
February 26th, 2007 at 10:35 am
It sounds like this was an error on her part and not the credit card company which sadly means she will have to pay it. I suggest prosper.com or a similar service as one option.
February 26th, 2007 at 10:38 am
Thanks again everyone and to the person who said this story was bogus — it’s not. I sent an email concerning my friend to some of my favorite financial bloggers with hopes they’d email me back, and a couple like JD were kind enough to post it for the masses’ advice. I dunno why you’d think it was bogus? Thanks again everyone!
February 26th, 2007 at 10:39 am
Like others I would avoid the loanshark companies at all costs.
I think the important thing here is to move this debt to a trustworthy entity of some kind. These sketchy companies do everything in their power (fine print, misleading statements, put you on hold, etc) to make their customers continue paying interest, so it’s important to start dealing with someone she can trust. Normally I’d say to ask a family member for help. If that’s truly out of the question, I’d go to a credit union or small bank.
If her car is worth at least $3,000 she may be able to take out a loan against her car. If that’s not an option, she may be able to get a personal loan in that amount. The rate would be higher than a car loan since there’s no collateral.
February 26th, 2007 at 10:52 am
First, most civil actions will not qualify you for a court appointed attorney. Second, most debts are collectible even if the original creditor has “written them off”, since they usually sell the debt to a collection company. Just because the original creditor says it’s written off doesn’t necessarily mean that it isn’t collectible. Third, the advice regarding the SOL in GA is good, as is the request that they send her a verification of the debt in writing. You definitely want more than just their list of charges and interest. You want something (ie a contract or other document such as the original application) that says you originally agreed to pay for the debt. Lastly, most collection agencies are willing to discount by 50% or more to get you to pay something, especially if you’ll pay something significant NOW. But, keep in mind that if your SOL had previously run, making a payment will renew the obligation.
February 26th, 2007 at 11:02 am
I agree with Brian. These collectors are playing a game to put you in a panic and make you do something stupid to get them money. Don’t cave to the high pressure. Find out if you really owe, how much you really owe, and talk to the collectors about a payment schedule. They DO NOT want to go to court. If they will not work with you, get a 0% interest or low interest rate card and put the debt on it. Then eat macaroni and cheese until you get it paid and get out from under all this debt you’ve created.
February 26th, 2007 at 12:03 pm
Whether it is the original owner of the debt or a collection agency, offer 25-cents on the dollar, cash, paid by direct transfer. If it’s a no-go, ask them if they will take any other amount less than the actual debt. Many will. If they consider her acts fraudulent (charged it up and rarely/never made payments), they won’t make a deal.
February 26th, 2007 at 12:32 pm
Credit cards are unsecured debt, they can’t just take someone’s car. The court won’t order specific remedies either, this sounds like the collection agency is trying to intimidate your friend (and that they’ve succeeded). Such tactics are sometimes illegal.
The ruining of credit happened long ago, when it got turned over to a collection agency it was already too late for your credit score.
She might be able to ride out the statute of limitations, or if that’s too long she can work out a payment plan.
February 26th, 2007 at 12:57 pm
Depending on state law you have certain rights. Consult a lawyer. If the company to whom the debt is sold does not have your original contract, they really can not collect. Depending on state law, you may get a better deal by settling. In NC once you settle for a paymant plan, your interest is reduce to 8% instead of the penalty rate which can be over 20%.
Don’t agree to anything without competent legal advice. But, if you won’t settle in NC a sheriff can come into your home and take things like your car, tv, video games etc to be sold at auction to pay off the debt.
Get competent leagal advice immediately.
February 26th, 2007 at 1:22 pm
The courts can’t take the car because the car is not hers. It belongs to the dealership.
February 26th, 2007 at 3:21 pm
When readers give advice, perhaps they can comment on how they are qualified to give it. Many here said that they will seize her car. Normally creditors go after bank accounts and wages first. They would not go after a vehicle unless it was paid off and worth A TON of money.
(P.S. I worked at a consumer BK firm for 7 years.)
February 26th, 2007 at 3:47 pm
I would call Dave Ramsey :).
Seriously though, call in during his radio show and talk to him about this. I’ve heard him give fantastic advice to all kinds of people in bad collection situations.
February 26th, 2007 at 7:32 pm
First off as people said, work with the credit card company or whoever they sold the debt to.
Second of all, I was thinking…if I was her brother, I would give her the money to pay that off, and let her pay me back over time. I think she should ask family members for it.
February 26th, 2007 at 9:21 pm
first off under no circumstance contact the creditor. go talk to a lawyer. and do the whole 30 min what ever. also check the credit boards that was posted last week. read those about people in the same situation. does she really owe the money? she needs to find this out. but she can also do a couple other things that might be ok. one is to ask for a continuince. and again find a laywer. do not goto one of those loan sharks. if shes a member of a credit union she can try to get a signature loan.
February 27th, 2007 at 12:09 am
I see a lot of conflicting advice above. Some is good, but a lot misinformed.
I have experience (unfortunately) dealing with debt and “zombie” debt collectors and lawsuits ( I have represented myself and won and gotten dismissals easily- without setting foot in court).
Probably the most important question is: How OLD is this debt?
Before everyone starts preaching ( “How could you forget?”..”Make sure to contact and settle”,etc..)and giving potentially HARMFUL advice. If you are the preachy sort who would pay legallly UNCOLLECTABLE “debt” that some Junk Debt Buyer bought for an average of 2 cents on the dollar, well good or you. But I wouldnt recommend it.
the REALITY is There is a Statue of Limitations on credit card debt. In some states it can be as little as 3 years, with almost all states falling between 3-6 years. This time period generally starts when the first payment is late or missed and the account is never brought current. Sometimes paying ANYTHING on an old account is the worst thing you can do.
Georgia SOL looks like 4 years ( “9-3-26.
All other actions upon contracts express or implied not otherwise provided for shall be brought within four years from the accrual of the right of action. However, this Code section shall not apply to actions for the breach of contracts for the sale of goods under Article 2 of Title 11.”- thanks Why Chat from CreditBoards and Why Chat’s Credit Confusion.
So if this credit card has been delinquent more than 4 years, it is legally unenforceable. Usually original creditors will chanrge-off within 6 months and sell their debt for pennies on the dollar. Whoever owns it now is probably a company that buys portfolios of old debt for pennies. Then they try to collect and convince people who do not know the laws to pay something. They rarely file suit against anyone who knows how to defend themselves. They go for fast settlements and Default judgments.
This whole “lose a car and ruin her credit” idea is also taking a big leap.
1. Sorry your credit is ALREADY ruined. When you are 30 days late on any credit card it can stay on your report for 7 years. If you are on the verge of being sued for an old debt, you already have a deliquent account, a charge-off, and most likely multiple collections on your report.
2. “Going to Court” means nothing. It’s LOSING in court you have to worry about.
3. Going after your car or house is one of the last things a creditor with a judgment will do. First they actually have to WIN ( this can take several months, you get to defend yourself and write Answers,etc. If I can do it ANYONE can). Then if they win, you can always settle then, or they will try for a wage garnishment or bank garnishment.
If it has been LESS than 4 years ( and even if it has been more) you want to dispute and ask for validation in WRITING- DO NOT call them, do not call CCCS, do not call Dave Ramsey, do not make any settlement arrangements-not even a “partial payment” and please do not give them any bank account information. If you need help with any of this see Credit Boards ( warning, most people there will expect you read the newbie section and at least have some clue about the situation before answering a bunch of questions).
Also, “when she was in college in Georgia”? So she’s not in Georgia now? Where is this collection agency/debt buyer? Are they in Georgia? If they are suing, it must be where she lives now ( if the even plan to sue, whic is unlikely). If they sue her in another state she can get it thrown out for improper venue. If they do not have offices in her state they are not planning to sue, unless they have hired a local attorney in her area. In fact, threatening to sue if they have no ability or intentions to go through with it is a violation of federal debt collection law ( a high % of collector’s violate laws and set themselves up for easy countersuits and $1000 pay-outs per violation).
Persnally I would stay off the phone, read up on credit boards and do everything in writing.
February 27th, 2007 at 12:32 am
This is really not an emergency. She is in no more trouble than she has been in. Just because someone says that you owe them money doesn’t mean that you really do.
1. Find out whether you really owe this money. Call the credit card company, and see whether it is true or not. If you really think that it wasn’t you. Tell them that they have you mistaken for somebody else or that there is a mistake.
2. If the credit card company won’t drop it or if the credit card company don’t have a record of it, then get a copy of your credit report and see whether it is there on your credit report. If you disagree with the charge, called the credit bureaus and say that this charge is not mine, and that you want it taken off your credit report. The credit bureau will try to find out whether it is legit or not. If they can not verify it, then they will take it off your credit report.
3. If people are suing you in court, if you already got the summons to show up in court, then show up. You explain your situation, tell them that you didn’t know anything about this. Tell them you want to make a payment plan, and ask them to waive all the interest charge that were accumulating. Tell them you will just pay the principal amount that you owe. See whether they go for it. Also, make a deal that if you pay them off, they will clear it from your credit report.
Common Sense
http://wisdomfrommywife.blogspot.com
February 27th, 2007 at 2:38 pm
Protecting Yourself From Debt Collection Agencies
This article was written by Jennifer Lynn of Broke-ass Student about Collection Agencies:
Preserve your rights against debt collectors to make sure you’re being treated fairly
If you’ve been contacted by a collection agency, don’t be afraid, feel ashamed, or become nervous. Remain firm and stand your ground. Never allow yourself to feel manipulated or bullied. You will never, ever go to jail for not paying a debt. Take a deep breath, learn your rights, arm yourself with knowledge and prepare to fight back. You have more power than you probably realize.
Full article and link at orangesky303.blogspot.com
March 4th, 2007 at 1:58 pm
How does someone “forget” that they have a credit card? Really?
March 4th, 2007 at 3:15 pm
I’ve forgotten about credit cards before… but not ones with balances on them! I just got a Buy.com credit card because they were giving $50 off my order if I signed up for a card & put my order on it. That’s a no-brainer to me. I’ll never use it again, and at some point I’ll forget about it… and then eventually close it.
April 20th, 2007 at 5:22 am
Thanks everyone for ALL the info. I am in debt past my eyeballs, but I do see some hope ahead. I will try to contact the credit card companies first and see what they tell me. On one debt I owe I will get it validated in writing. Does anyone know the SOL for Florida?
October 13th, 2007 at 8:57 am
I’ve been in a similar credit emergency. My husband and I relocated to another city where he was without work for 6 months. To make ends meet, we let our car payment slide. By the time he got a job, the bank in our old town had already issued the repossession order.
We went to a credit counseling agency (make sure it’s a not-for-profit group!). They contacted the bank, made arrangements for us to repay the debt, and avoided having our car repossessed.
The nicest part of credit counseling is that the agency can often get the creditor to reduce or waive the interest on the account, leaving the actual debt to pay off much lower than it first appeared.
It was tough, but credit counseling really worked.
Good luck!
October 13th, 2007 at 9:07 am
P.S.
Another bonus: once you hook up with credit counseling, *they* handle all communication with the creditors. If any phones you to try and collect a debt, you simply say “Talk to Mary, my credit counseling representative at 555-1212.” (Try consumercredit.com or any of the Consumer Credit Counseling agencies.)