I fell into the college trap of signing up for a credit card to get a free T-shirt my freshman year of college. I didn't use the credit card much throughout college, but after I graduated, I lived off my credit card on and off for the next two years. I wasn't working full-time and the summers were hard on me financially. One summer, I ended up racking up $5,000 in credit card debt.
After listening to the advice from my brother, I decided to stop making the $200 monthly minimum payments on my credit card until I was making enough money to save up and pay off the debt. That didn't work out so well in my favor, however.
After several phone call attempts to collect the debt, my credit card issuer decided to charge off the debt and sell it to a collection agency. I have since only received two letters from this company stating that if I don't pay the balance in full they will sue me. No action was actually taken on their part, and I haven't received any other communications from them.
I recently got a full-time job with benefits, making double my previous salary, and was ready to pay off my debt. With a help of a friend who had struggled with debt and even declared bankruptcy, I contacted the collection agency to see if they would be willing to settle the debt.
My question to you is how to approach paying off this debt. Should I try to settle the debt by hiring an attorney to fight on my behalf? Or should I contact the credit counselor myself to see if they would be willing to settle the debt? Or should I contact them to see if I can set up a payment plan until the debt is paid off (without a settlement)?
Thanks so much for reaching out, and I'm so sorry you're in this situation. I think your best bet is to go through a non-profit credit counseling agency. They'll be able to take a look at your finances and evaluate whether debt settlement, a debt management plan, or even bankruptcy might be the best option for you.
You can also check out a nonprofit financial literacy group in your area -- here in San Francisco, a group of nonprofits sponsors Financial Planning Day, where you can meet with a professional to get help on everything from getting out of debt to budgeting.
When you're choosing a credit counselor:
- Search the U.S. Department of Justice website to find an approved credit counselor.
- Make sure the counselor doesn't charge upfront fees. You should at least get a free initial consultation.
- Check with your state attorney general to make sure there are no complaints against the counselor.
- Don't go with anyone who tells you to stop making monthly payments to your creditors, without having worked out an arrangement with them. As you've seen, if you stop making payments, it sometimes has serious consequences for your credit score and doesn't help you get out of debt.
The FTC has a great list of questions to ask before settling on any credit counselor or debt management program.
I hope this helps. It's hard to go through this alone, and bringing in an experienced professional can provide you with both support and guidance, possibly at a lower cost than going through an attorney.
Best of luck, and congratulations on taking control of your finances!