Should I Pay Off Defaulted Credit Cards?

John Ulzheimer

John Ulzheimer | Blog

Feb 25, 2013 | Updated Apr 27, 2016

When you default on a credit card obligation you set off a series of events, none of which are good. The credit card issuer closes your account and starts sending you past due notices. The issuer reports your delinquency to the credit reporting agencies thus populating your credit files with negative information. And, the issuer may enlist the assistance of a collection attorney or collection agency to convince you to pay your bill.

Bad things happen to good people but credit card issuers are in business to make money, not friends. When you take out a credit card and incur a balance you have a great responsibility to manage the card and balance properly. Here are some options for you if you’ve defaulted on a credit card balance.

Avoid The Phone Calls And The Collection Letters But Probably Get Sued

And, when the process server shows up at your door with a court summons, you can’t ignore it. Doing so will lead to a default judgment being entered against you, which means you lost in court without ever showing up.

Formally Instruct The Collection Agency Never To Contact You Again

If you do so they must abide by your wishes. However, they can still report you as being delinquent to the credit bureaus and they can still sue you.

Consider Bankruptcy…Only If You Have Significant Debt

Bankruptcy is legal protection from your creditors and when you file they can no longer attempt to collect the debt, under most circumstances. If bankruptcy isn’t an option for you then you should consider working with your creditor or collection agency to come up with a mutually agreeable solution, which is normally in the form of some sort of settlement.

Attempt To Work Out A Payment Arrangement With The Collector

Remember, you’ve already failed at one attempt of paying back your debt via a payment plan (the credit card) and the collectors know this. Settlement isn’t a terrible option at this point. The account is already showing up as negative on your credit reports and the fact that you settled the account may not cause any incremental damage to your credit. If the creditor accepts the settlement then your balance is now $0. It’s not “paid in full” but rather, “settled in full.”

You Can Negotiate A Settlement On Your Own

You do not need to hire a company to facilitate a settlement on your behalf. Despite their advertising, they cannot do anything more for you than you can do for yourself. And, some credit card issuers frown upon working with settlement companies and would much rather work with you. They make more of their money back and you pay less when working on your own to settle a debt because you’re not taking care of paying a middle man.

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