 Even in collections, bad debt mounts
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 Dear
Debt Adviser,
Hi. I am currently a college student working toward my master's
degree. Last summer I was offered a credit card with a somewhat
large limit ($2,500). Well, unfortunately, I managed to max it out
by the end of the summer because I had a job at the time and thought
I could pay it off. When school started, my income became very limited.
I only had money to pay for rent and food, nothing else. As a result,
I let the credit card go and have never really answered the creditors'
phone calls. A couple days ago, a new phone number started calling
me and I think they sold my debt to a collector. I do not know what
to do. Right now I could only afford to pay $50 a month at the most.
I am so confused and feel so helpless. Please help me.
P.S. I will never do this again. I definitely learned
my lesson. Thank you.
-- Jess
 Dear
Jess,
When I first began giving credit and debt advice I coined a phrase.
At the risk of having my wife roll her eyes, let me pass it on to
you: "Debts, unlike wine, do not improve with age." Your letter
is an excellent example of this premise. In fact, usually the problem
just gets worse. In your case, the amount that you owe continues
to grow each month with interest charges and fees, due to the fact
that you are not making a payment.
One common misconception is that once you stop making
payments on your credit card debt, and it is written off or is turned
over to a collection agency, any applicable interest charges and
fees on the account stop. That is incorrect. The terms for the account
remain in effect when the debt is sold to another company.
So the balance on the account is accruing interest
each month and most likely a late payment and over-the-limit fee
each month. By ignoring the debt, you now owe more than the original
$2,500 balance, probably a lot more.
For all practical purposes, this debt will not go
away. Some people might tell you there is a statute of limitations
on debts, and there is. However, if you are planning on living a
normal life between now and the expiration date of the debt, which
may be years away, then you have to deal with it. That means dealing
with the collector. As difficult and painful as it might be to deal
with your collector now, it will be better and cheaper than waiting
for a court summons and dealing with it then.
Here's my advice: First, figure out how much you can
afford to pay back each month. Don't just use your current income,
and expenses. Try to free up money by cutting back and add to income
with a part-time job or some other work. Consider selling some stuff
to get a decent good-faith down payment in hand. Next, call the
collector and agree on a repayment plan. Be careful not to over-promise
just to get off the phone. Get your arrangement in writing to be
sure you both understand it.
Keep in mind that collectors have to follow rules.
One rule is that they cannot use abusive language on the phone.
If you are unable to reach a workable solution with the collector,
I would suggest you call the original credit card issuer and try
to work with them directly. If this fails, contact a reputable credit
counseling agency and let them help you resolve the situation.
Tackling the problem instead of ignoring it will alleviate your feelings of helplessness and you will feel much better about the situation.
Good luck!
P.S. I'm glad you have learned your lesson. As financial problems go, this is not a big matter. How you handle it is.
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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