 Burned
creditor offers new credit card? Be wary
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 Dear
Debt Adviser,
A credit card company that I have a charge-off account with (that's
soon to be removed from my credit report) recently offered me a
new card with the opportunity to transfer the charged-off balance
to it. They say I can remove that credit negative and add a positive.
What do you think I should do? Thank you for an answer.
-- Tyler
 Dear
Tyler,
It sounds to me as though you hit a patch of rocky road a while
ago and one of the bumps turned into a charged-off account. For
my readers who might be unclear about charge-offs, they are the
result of not paying a debt as agreed for a long time. Usually it
is six months, but it can be more or less depending on lender policies.
The lender is saying that it is no longer counting your loan as
an asset on its books, hence the term "charged-off."
Let's look at the situation from two perspectives
-- your credit report and your obligation to pay the debt.
First, the credit report: If the account is about
to come off your credit report, the default must be about seven years
old. By law, negative but accurate information about your debt payments
can stay on your credit reports for seven years. If that's the case,
you've been punished for your mistake by being saddled with a bad
credit report and high interest rates, but your credit is about
to improve, whether you take the lender's offer or not.
Now, let's look at your obligations. My position is
you morally owe the debt. You promised to pay, and you should. But
whether you legally owe it is another matter.
For the lender to offer you new credit, one of two
things is happening. One possibility is you have been making some
payments on the account -- enough to lead it to think you are a
better risk now than you were before. If you have made any partial
payments in the past few years, you're probably still legally on
the hook for the debt, and the lender's offer is worth considering.
The other possibility is that you have made no payments
and the credit card company is trying a last-ditch effort to collect.
If it has been seven years since your payment, it's almost certain
you don't legally owe it. State laws vary, but the statutes of limitations
for credit
card debt generally run four to six years. Only one state --
Wyoming -- has an eight-year statute. The statutes don't bar anyone
from attempting to collect the debt, but they do mean a lender cannot
win a lawsuit to collect.
I say morally you should pay it, but if you haven't
made any payments in almost seven years, I want to make this clear:
By moving the debt to a new account, you will likely reactivate
a legal obligation that doesn't exist now, and without gaining any
credit score advantage since that's about to occur anyway.
If you do consider moving the balance to a new card,
be sure you know what the interest rate will be and what limit you
will be offered. What you want to avoid is moving say a $2,000 balance
at 12-percent interest to a card with a $2,000 limit and a higher
rate. You'd gain nothing, but the creditor would have a new debt
on its books at a higher rate which, in the event of a new default,
could negatively affect your credit going forward more than you
may be helped by a nearly 7-year-old charge-off coming off your
credit report. Even if you had some room for more spending in your
new card limit, any new purchases would begin to accrue interest
from the day of purchase, and that is one pricey way to use credit.
My suggestion is to continue to make regular payments
to pay down the loan, and if you want a new credit card, get it
from a lender you haven't burned in the past. A clean start with
a new lender is preferable to rekindling what may or may not be
a bad relationship. Getting back together with your old lender might
in some ways be like dating a person with whom you had a bad relationship
in the past. It might work out, but is it really worth the chance?
As always, and especially in this case, you need to
read all the fine print very carefully before you make a decision.
And please don't accumulate any new credit balances you can't pay
in full each month until you retire the old ball and chain (I'm
talking about your old loan). Ultimately, you are the only one who
knows if you can be responsible with a new card. But I can assure
you that once you pay off that old account, you'll feel great!
Good luck!
The Debt Adviser, Steve Bucci, is
the president of Money Management International Financial Education
Foundation and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt advice or to ask a question of the Debt Adviser
go to the "Ask the
Experts" page and select "debt" as the topic.
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