Beware of debt collectors offering credit cards
It's part of a scheme to get you to pay off debt after your legal obligation to do so has expired. Don't fall for this.
This post comes from Rob Berger at partner blog The Dough Roller.
Imagine that you have unpaid credit card debt. That's the bad news. The good news is that the statute of limitations on the debt has expired, so you are not legally obligated to pay. But your credit scores have taken a dive, so getting more credit seems impossible.
And then comes along a subprime credit card with a twist.
The Wall Street Journal has reported on a new push by debt collectors to convince consumers to pay expired debt. The pitch is simple: Agree to pay some portion of your old debt, and you will be approved for a new credit card. According to the WSJ article, a lot of people are taking this deal.
And they are making a big mistake. Let me explain.
How these subprime credit cards work
Debt collectors use a lot of strategies to collect debts. When it comes to expired debt, they often try to convince consumers that it's their moral obligation to pay the debt, even if the statute of limitations has run.
I'll leave it to you to decide what your moral obligations are, but it's laughable that debt collectors take this approach. These are the same people who call people at work and use computers to call consumers repeatedly throughout the day. They are the last group of people to talk about moral obligations.
More recently, they've turned to this credit card scheme. They partner with a bank willing to issue subprime credit cards. The debt collectors typically guarantee payment to the bank to entice them to issue the credit card. Then they offer these cards to consumers if the consumers will pay some portion of their expired debt (e.g., $400). Often the credit limit on the new card is equal to the amount of debt the consumer repaid.
To further entice the consumer into this deal, they offer a "balance-transfer" program. This is not like the typical 0% balance-transfer offers major credit card issuers promote. Instead, this program allows the consumer to pay the expired debt by "transferring" it to the new card. The result is that the once-expired debt is now a brand-new obligation that is legally enforceable.
On the surface these deals may have some appeal:
- You get a credit card even though you have bad credit.
- By "transferring" the old debt to the new card, you don't have to pay anything out-of-pocket.
Why you should avoid these credit cards
There are two key reasons to avoid these offers like the plague. First, the credit card you'll likely get will be a real stinker of a card. They typically sport interest rates of 20% or more and fees that make the banking industry look like a charity.
Second, you are paying debt you no longer legally owe to get a credit card you can probably get on your own. It's relatively easy to get a credit card even if you have bad credit. You don't need these "deals" to get a card.
So if a debt collector comes calling with a great "deal," consider these three alternatives:
Asecured credit card. With these cards, you deposit money with the credit card company as a guarantee for future payment. Your limit is typically the amount of your deposit, and these cards help you build your credit with timely payments.
Unlike cards offered by debt collectors, you get your deposit back when you close your account. With the best secured cards, card issuers require a minimum deposit of a few hundred dollars, but the actual amount is up to you based on how much credit you want. Because your deposit secures payment of future credit card bills, people with really bad credit (or no credit at all) typically get approved.
Aprepaid card. While these cards do not come with a line of credit (you deposit funds on the card much like a bank debit card) and they won't build your credit, approval is guaranteed. These cards typically can be used anywhere Visa or MasterCard is accepted.
The key is to realize that you have options. So if a debt collector tries to convince you to pay expired debt in exchange for a credit card, consider the above options first.
More on The Dough Roller and MSN Money:
You don't "NEED" a credit card for anything despite what shills tell you. Have an account for your direct deposit (since you HAVE to) and use a debit card = problem solved for online transactions use the debit card like a credit card etc).
If you are worried about your "credit" score and raising it because you are convinced that you can't live your life without being in debt for that 60k NEW car or flat screen tv etc well then you are just a lost cause. You don't need a credit score for a job you need GASP***** SKILLS for a job. Don't have any accidents yeah a bad credit score might JACK UP your insurance payment by like 10 bucks a year. OMG....can't have that. The effects of these things in your life are minimal despite what the "experts" tell you. Hrmm the experts also make their money in these type of fields as well don't they....self interest perhaps? Wake up people.
Use a Credit Union. Forget about credit cards go debit cards and stop being a slave to the financial system. Can't pay cash for it?? DO NOT BUY IT THEN. You will sleep better at night.
so, who are these debt collectors and what banks are partnering with them? How about naming and shaming....and why give a plug to a rip-off fake bank like Orchard? That's the #1 problem that has led us into this financial crisis--letting anyone who can pony up some capital call themselves a Bank.
I think I would almost laugh if someone told me I had a "moral obligation" to do anything much less pay back some long ago written off debt. I could settle that issue right then and there--"hmmm...that's interesting, except, I have no morals."
I laugh in debt collectors faces. Then block their number. That said, I dont do credit. Never have, Only debt collector I ever dealt with, is one over a utility bill. The key is to keep your info private, so they cant find you. Or its atleast harder. Where I live, you can sue them for harrassment if they break the rules or call too much. Like calling late at night. Or harrassing your friends. Laws are different all over, so you have to find out what they are for where you live.
They are scum. It should be illegal to sell debt.
your self righteousness being preached to others in a VAIN effort to tell them what to do.You just remember this."UNEXPECTED EXPENSE" is a working persons WORSE financial nightmare.ALL it takes is for a child or parent to get hospitalized,or an accident and it's on."YOUR" time WILL come.I just sincerely HOPE it's not sickness.
I will add one pertinent fact my dearest.ALL one has to do on ANY debt is file a dispute with the three credit beaureaus and as long as ANY debt is in dispute.It will NOT figure into your ability to obtain credit.The LAW is on the cinsumers side on this one for a once in a blue moon.
For EVERYONE else.GREED got us ALL into this mess we are in and OUR money was USED to bail out the primary offenders Big Banks which NOW are hounding people to pay up that do NOT have the means to do so.Lastly be damn self righteous,uncaring,indifferent people like someone.EVERYONES time wil come to be in the pickel barell.We ALL are vulnerable and do not KNOW when we may find ourselves in said pickle.One more time.someones time WILL come because he is critical of others who are suffering when they did not cause it.Morals? obligation? Be damn both.The GREEDY Bastards that got us into this mess could care much less about morals.
True, one should own up and pay one's bills. My gripe is how they go about trying to collect...personally I do not carry any debt, period...but my sister is deep in it, and we get calls from scumbag debt collectors searching for her via my last name, sometimes with threats saying that if I know this person then I am responsible. Needless to say, I never pick up the phone which solves that problem 100%. Just ignore them, they are like gnats, pesky but essentially harmless.
I agree, just pay your bills on time, live within your means, and put some money away for the what if-s, then you wont have to worry about debt collectors..How hard is it to do that?
Stop making excuses for yourself and stand in your truth!
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