One of our readers, Brandi, asked this question:

Hi,

I’m a college student and my credit card debt got a bit out of hand…I have two cards that have been past due for about 3 months each: a discover card @ $961.99 the interest rate is 29.9% and a Capital One @ $1,085.33 the interest rate is 17.3%…I’m not employed and have been looking.

I’m in school in tallahassee and the job market here is garbage just like the rest of the country. But I really want to pay off my debt in january when i receive my fin aid which will be $2,540.86 after tuition and rent for 7 months are paid. My question is what should I do till January to not let them become any later?

Thanks for your question Brandi!

The first thing I can tell you is this: Contact your credit card company. Do not ignore their phone calls, or avoid talking to them.

If you are already past due, go ahead and call the collections department. If you are not past due, call the customer service department.

Once you reach them, try this:

• Explain to them that you lost your job, and that is why you have not been making payments - Go ahead and tell them that you are looking for another job, but do not have one right now.
• Tell them you will be able to pay the cards off in full, in January - You can tell them about your student loan money, even offer to let them hold a check for you if you are comfortable with it. (And if you are sure that your aid will come through when it is supposed to.)
• Ask them what they can do to help you - Most likely they are going to tell you that you have to make some sort of payments between now and January if you want to avoid having your cards shut off, and passed on to a collection company. If that is the case, tell them what you can reasonably afford to pay them. If that’s $20, it’s $20, just try to come to a workable arrangement that you can stick to.

Now, some credit cards have job loss protection. Depending on the card, this may have been something you had to pay a monthly fee for. But it is worth looking into. If your cards do have a clause like that, it will normally freeze your payments for up to three months, which would be ideal. Just make sure that you ask about the policy – even if you do not have it on your cards. You can always speak with a manager and ask them to put that policy on your cards so that you can remain in good standing.

Aside from that, you can look into some quick ways to earn money in college. Or even, how to earn extra money for the holidays. That would help get you through until you can find regular employment.

Obviously, that’s the best case scenario – you call both of your credit card companies, they are willing to work with you, and everything gets resolved and paid down in January. If you call them, and they are not willing to work with you, please just keep calling back until you get someone who is.

I promise, that works. One employee does not represent the entire company, and you can usually find at least on representative or manager who will help you out if you are persistent.

Just so that you do know, if you do not make payments with them until January:

• You will start getting collection calls
• Your credit card companies will shut off your cards, and close your accounts
• Your interest rate will almost certainly go up (check your terms and conditions). The average “default” interest rate is usually somewhere above 25 – 29%. So you will get stuck paying for a closed account, with an even higher interest rate.

Now, if you are somehow unable to make any payments between now and January, when you get your student loan money, and you call to pay off the cards, make sure you negotiate for the following things. You will have the most success if you are able to pay off the cards in return for asking them to do these things for you:

• Remove the late notices from your credit report - This is one you will want to get in writing form them if possible. If they refuse, you can challenge the late notices on your credit report lter, if you want to.
• Mark the account as closed by consumer instead of closed by creditor if your account has been closed
• Remove all of the late and / or over the limit fees on your cards before you pay them off. - All collection reps can do this. If they refuse to, ask for a manager.

Those are all things that will help you tidy up your credit report, and credit accounts after a few delinquencies.

Thanks again for your question, I hope everything works out well for you.

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This entry was posted on Tuesday, November 25th, 2008 at 09:45 and is filed under Reader's FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.