by Elliot Raphaelson
Consumers can find themselves with insurmountable debt for any number of reasons. Unwise use of credit cards ranks near the top. As a Florida certified county mediator for the last 12 years, I have seen cases involving failure to pay credit-card debt increase markedly over time.
It is not unusual for an account with a limit of $2,000 to rack up a balance of, say, $4,000 within a few years. How does this happen?
Many, if not most, consumers fail to read the initial agreement when they sign for a credit card; they assume they will always be able to make sufficient payments. When they cannot make the required minimum payments, or when they charge more than the limit on their card, bad things happen. Failure to make minimum payments results in an increase in the interest rate and a monthly charge for not making a minimum payment. Exceeding the card's credit limit brings additional charges.
When faced with hard times, many people naturally pay mortgage and car payments first, putting off paying their credit card debt. Given the high interest rates and fees this triggers, their debt can quickly spiral out of control.
Once you stop making minimum payments on your credit card bill, your card issuer will send you statements showing additional fees and higher interest rates. If you do nothing, these fees and charges will continue to accumulate.
If you do nothing and procrastinate until faced with a lawsuit, your options become limited. The credit-card issuer, or its representative, is entitled to legal expenses as well as court costs, if it can demonstrate that you owe the amount in question.
Along the way, however, you may have options you are not aware of to get a resolution more in your favor.
For example, once you have failed to make minimum payments for several months, the creditor recognizes that it is unlikely that you will be able to pay off the account in full. If it is forced to sell this account to a collection company, it will do so at substantial loss, so it may be willing to negotiate with you. If you offer to pay off some portion of the balance over a short time frame, such as two to three months, you may be able to receive a substantial discount.
If you are unable to negotiate successfully with your creditor, you can get help from a local nonprofit counseling agency. Contact the National Foundation for Credit Counseling (www.nfcc.org, or call 800-388-2227) to help you find one.
If the issuer has increased the interest rate on your account because of missed payments, try to renegotiate the rate. (When you call the creditor's customer service line, you can ask to speak with a supervisor.) Indicate you are now able to make minimum payments -- if the company is willing to reduce the interest rate. You have nothing to lose.
What can you do once you have been sued by a debt collection firm for an account on which you have not made payments for several years? If you do not believe you owe the money, or if you believe the amount is incorrect, send a certified letter (requiring acknowledgement of receipt) asking for documented proof.
When an account is purchased by a debt collection firm, especially if it has been sold many times, the firm may not have sufficient documentation. This helps your bargaining position. If the case is heard by a judge, the plaintiff will have to provide proof to the judge that the debt is owed. Once you request such proof from the debt collection firm, they know they are dealing with an educated consumer.
State and local laws and procedures vary. Your case may be heard by a mediator initially, who cannot offer you advice. If you believe your case is strong, you should insist on an appearance before a judge. If you do not want to appear before a judge, you should negotiate with the collection firm; there is no downside in asking for favorable terms for repayment and lower and/or no future interest charges. The collection firm may not want to appear before the judge either, especially if it has insufficient documentation. If you have requested documentation, and it hasn't provided it, it probably doesn't have it.
If you have credit card debt you can't handle, don't procrastinate. Find ways to pay off the debt at a discount, or have the interest rate reduced. Otherwise, the debt will increase quickly, and it will become even more difficult for you to resolve the problem.
Elliot Raphaelson welcomes your questions and comments at firstname.lastname@example.org
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