|
Dear Debt Adviser,
I made a stupid mistake. I refused to pay my gas credit card because my $95 gasoline bill grew to $305 after
$210 in late fees. The last payment was in January 2005.
The gas credit card was charged off in June 2005 and sold to a collection agency in May 2007.
The collection agency raised the amount due to $408 in May of this year.
In six months, the debt will be past the statue of limitations in California, which is four years.
I was trying to refinance my home mortgage and I found out about the negative items that I've
been ignoring. I'm not sure what to do.
I have no other debt and I have a lot of assets. I can easily pay off the debt, but it might not
be worth paying it off since the damage has been done to my credit.
Should I contact the original creditor? Hire a credit repair agency? I can pay off my debt, but
I'm not sure I can fix my credit record.
-- Mr. Hosed
Dear Mr. Hosed,
You owe $408 for $95 worth of gas? I hope you have a lot of stock in that oil company! Seriously, you started
your letter correctly by acknowledging you made a mistake. Then, you made things worse by ignoring the situation.
Unpaid debts are similar to exes or fish -- it's best to deal with them quickly or they start
to stink!
Before you make another mistake (or two or three), let me address some of the key points you
raised. I'm doing this not to embarrass you, but to help inform you and my readers who have probably
never had any credit or financial education.
First, you have six months until your state statute of limitations applies. You should take
little comfort from this.
The item will be reported for seven years from the delinquency that led to the charge-off. I
figure that to be January 2012. The statute may keep a collector from getting a judgment and subsequent garnishment
for the debt, but only if you show up in court (at your expense) to show that the debt has expired.
You still owe the debt, and collectors can still call and hound you day and night. The debt also
will remain a negative on your credit report.
Second, your mortgage refinance
issue is just the tip of the iceberg. Many people
don't know that a negative credit history will
also hurt you if you have to look for another
job, are up for a promotion at work, are at renewal
on your personal insurance or are trying to rent
an apartment.
A poor credit history also may trigger a universal default (with 30-plus percent interest rates)
on your other unsecured credit accounts.
Third, if you can easily pay off the debt, do it -- to avoid all the difficulties I just
mentioned and to avoid an unpaid charge-off on your credit report, which is a very serious negative item in
your credit score calculation.
Pay the bill and your credit report will show a paid charge-off. This says you were late
but stepped up and made good on your promise to pay. That's so much better than what an unpaid obligation says
about you to those viewing your credit history.
Fourth, stop trying to get around this debt. Pay it and move on. Pay the original creditor, pay
the collector -- however you do it, just pay it! Until you do, you can't begin to fix your credit record.
Forget the credit-repair company. You will begin rebuilding your credit record by paying your bills
on time and in the amount to which you agreed. It doesn't get much simpler. You have the money. You owe the debt.
Pay it and treat this as a learning experience, and a cheap one at that.
Finally, you are seeking to refinance your mortgage during a credit crunch and because of the current
credit cycle, your refinance terms may not be attractive enough to make the move.
It may be better to ride out this current tight credit cycle and refinance once lenders again have
excess money to lend and your credit has recovered to get you a great rate.
Moving forward, I would encourage
you not to ignore any of your debts. As you have
seen -- and as I love to say -- "Unlike wine,
debts do not improve with age!"
|
