We received an interesting reader question this morning:
I was googling for credit advice websites when I stumbled across the
CreditBlogger’s website, which appears to have a wealth of knowledge…
I’m currently approximately 10 months behind on my credit card bills. I have 5 credit cards in total, they range from $300 to $5,500 limits,
roughly $12,500 all together. They’re all maxed, and due to my lack of
paying them, my balance is well over the limits for each. I’m continuously getting calls, often more than 20 a day. It’s been such a
headache I had my telephone number changed. I’ve probably did the
worst thing I could do,which is just to avoid them all together. I’ve
got a letter from one that said it was wrote off as bad debt, the rest
have all been sent to debt collectors.
I’m curious as to if I should try to repay them at this point, or just
go ahead and file bankruptcy. My credit is already ruined, and these
things are going to stay on my credit report for 7 years, just like a
bankruptcy. Is this the wrong way for me to look at things?
I’m living really close to paycheck to paycheck, and I still live at
home with my parents. I’m going to be moving out in 6 months to start
a life with my fiance, and I’d like to get my credit back on track as
soon as possible. Not to mention once I do move out I will be living
paycheck to paycheck.
Is bankruptcy my best option?
In this situation, it appears that all the damage has already been done. Once a debt is sold to collections there’s nothing you can do to reverse the credit harm. This is a bad thing and a good thing. Good because it makes your choices much easier.
If you hadn’t already been sent to collections, I’d offer a variety of options for you to consider. But since you’re already there, it’s cut and dry. You don’t need to be in a rush to pay the collectors back, it’s not going to remove the negative records from your reports…but you do need to pay them back. And you’ll want to do it by negotiating drastically reduced lump sum settlements with the agencies. Remember, they only paid pennies on the dollar for your accounts.
Under FDCPA law, you can request that the collector stop contacting you. Which isn’t recommended unless you don’t believe you owe
the debt or dispute it. If you do that, you may throw the debt automatically
into the queue for a lawsuit. There’s a trend for faster lawsuits because of the
additional collection rights on a judgment debt.
It might take you some time to save, sell and earn enough cash to make these settlements. Make it your primary goal to build up these sums over the next two years. It may even mean delaying your move. When you have a couple hundred bucks in the bank, call one of them up and make an offer. Be sure to get their agreement in writing before you send your money. Repeat the process and keep these records on hand for 7 years.
Once you get the accounts settled, you should focus on rebuilding while waiting for the collection records to expire in 7 years. If you don’t have an active credit card open, you’ll probably want to get a secured credit card. You’ll also need a small lump sum to use as a security deposit on this account.
Bankruptcy won’t really do much to help your situation and will only add negative records to your credit reports. You’re better off putting the money you would have spent on filing towards making settlements.
You can read more about your collection rights at Credit.com. Or you can buy the best book on the subject from our own Gerri Debtweiler.
Emily Peters – Credit.com‘s personal finance expert and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.
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Refreshing and insightful, excellent professional advice, very well written, congrats.