Reducing damage from unpaid credit card debt

Dear Steve,
I recently graduated from college and would like to try to fix my credit card debt. One card is in collections and one charged off. I can afford to pay this off now, but don't want to pay them if it's not going to help my credit score. Can I get them to agree to change the status from charged off to paid in full if I pay them or will I just help them find me so the calls can start all over again? Thanks so much!
-- Stephanie

Dear Stephanie,
How did someone with such a sweet name get into so much trouble? Anyway, you have a few things going on here, and I'll be delighted to try to help clarify what I can.

Notations such as "collection" and "charged off" on your credit report raise a red flag to potential lenders and can seriously affect the terms for any loan you may apply for over the next few years. Although the negative report will remain on your report for the next seven years, as you add positive information from using credit and paying future bills on time, they will get smaller in significance.

Let's look at the card account that is in collections, but not yet charged off. This one is the less-serious of the two on the credit-damaging scale. The good news is that it may still be with the original creditor; or, if it went to an outside collector, the creditor might take it back. So I'd call the creditor and ask your question. They may want to know what happened, and I advise that you have something to tell them. If you just blow them off, they may well take it personally. If you sound as sweet as your name, they might change the status, although it isn't exactly kosher to do so. You may have a better shot if they are a retailer and would like your business again.

The charged-off account is more likely to have been sold to a collector. If this is the case, then the card issuer will be reporting the charge off and they will have closed your account already. The collector will be reporting the collection experience. In this case you would be stuck on the original debt, but the collector would be able to report that you were paying, and eventually the card issuer would show the charge off as paid. This will be an improvement over what you currently have.

Any leverage you have with the credit card companies is gone once you pay your bill, so the time to get them to listen to anything you have to say and make any concessions is before you pay. You may contact the creditors by phone first, but you will need to be sure that any agreements made by the company are in writing. Don't assume that someone at the company saying they will take care of it is good enough. It is not. I am not implying that you will be lied to, but misunderstandings do happen.

I know you are concerned about calls from debt collectors, and I won't lie to you: You may have to put up with a certain amount of collection calls before this is resolved. Within the limits set by the Fair Debt Collections Practices Act, they are entitled to contact you. After all, you owe the money. If you don't have caller ID and an answering machine, get one before you start, and learn your rights so you can tell legitimate bill-collection activity from illegal harassment.

I applaud your intentions to make good on your debt, and I'm pleased to see that you are recognizing the importance of a good credit score. Just by paying the debt, even without any concessions, you will be helping your credit score.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation. Visit MMI for additional debt advice or click here to ask a debt question.