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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.

By MSN Money Partner Jan 12, 2012 12:29PM

This post comes from Rob Berger at partner blog The Dough Roller.

 

The Dough Roller on MSN MoneyImagine 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.

Postcontinuesbelow.

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:

 

Credit cards designed for poor credit. I'd start with Orchard Bank as they offer the most reasonable interest rates for bad-credit credit cards.

 

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:

24Comments
Jan 12, 2012 2:19PM
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You shouldn't bother with debt collection anyway. Just file BK and wipe it away.

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.

Jan 12, 2012 1:54PM
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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." 

Selah

Jan 12, 2012 3:11PM
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some one please tell me what the republicans have to do with this such as credit cards ok.
Jan 12, 2012 3:05PM
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Its a evil trap to lure you in for the kill just to entice you .
Jan 12, 2012 11:44PM
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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.

Jan 12, 2012 7:16PM
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I've been carrying around bad credit for 12 years thanks to a misdiagnosed heart condition at age 18 and hundreds of thousands of dollars in medical bills since. Every credit card I've ever been approved for has quickly been maxed out with medical expenses or even medical debt payments to get some temporary relief from collectors. I've learned a couple good lessons along the way, but first and foremost, I don't let collectors for any kind of debt shame me into anything - and I no longer take any credit offers in the first place. "Living within my means" wasn't an option, and doing so would have put me six-feet-under a decade ago. That's not shameful. It's shameful that as a culture we are addicted to debt and seem to assume everyone with debt problems got there the same way.
Jan 13, 2012 2:18AM
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i filed bankruptcy, included all my debts. an attorney's office contacted me two years later, said i owed money on an account.  i was not healthy at the time, suffering from illness, so i just assumed i owed it and started making payments.  after about 6 months, i moved,  and found out that i had declared bankruptcy on that debt!!!  i tried to contact the business again, to confront them (supposedly a lawyers office) and the number they gave me was no longer valid.  my dad told me a long time ago, don't pay collection agencies, pay the company you owe.  that's what i do, even if it goes to collections, i pay the company.  i tell the collection agency to contact the company.  i even had one company send my payment back and tell me to send it to the collection agency.  i plan to dispute the collection agency on my credit, using the company's refusal to accept my money as debt cleared.  wish me luck!  if it doesn't work, i'll just eat that, it'll be gone in 7 years anyway.
Jan 13, 2012 1:00AM
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Don't agree to any payments. to any debt collectors.........d​on't give any phone numbers( i realize they contacted you once). if you start a payment plan make sure the offer is legit......i had 2 companies assume my supposed debt loan and try to collect on a already paid off account.....they try this all the time. some poor person with a memory disorder might forget its paid off...i was even second guessing myself.......keep all paperwork from a paid off account for your LIFETIME! I had these idiots calling me past the collection date  of 7 years! all states have a limitation on the collection allowed in years...just google this info. if its past the statute of limitations they cant take you to court but can still try to collect. i had to send a letter explaining that my account was settled in court years ago and to take my name off your list and any future collection attempts would be dealt with legal remedies.
Jan 12, 2012 10:38PM
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someone:

 

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.

 

mommy:

 

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.

Jan 13, 2012 1:35AM
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There seems to be a problem there are some people have lost a job or love one that may have caused thier problems and the 1% are fleecing the flock to rob you of all your money and dignity. so with that said you people please read what was wrote. These are not Tricks but some sanity to what was a bad life. Credit Cards are just a tool for the banks to rob you legally. CC were first to help people not carry cash then the banks got greedy and made the american people slaves. i agree the paying your dedt should be done but the banks have the maroles to stop. We need to elect our leaders to work for us not the banks or big business then there wouldn't be having this conversation. we have the responsibility by voting with our votes and our money to stop these big banks from stealing. Be a citizen and vote with your heart and your money. tell goverment that we are not slaves. One note My Bills Are Paid.
Jan 12, 2012 10:06PM
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Here's a fun one for you... My husband was terrible at managing his money when we were dating. He had several accounts (not cc's but things like rents and phone company) that were sent to collections. Before we got married we (I) took care of all of those. Flashforward 10 years  and we start getting "collection" calls and hateful harrassing calls about a phone bill that we paid, but alas,  it was 10 years ago that it was paid so all of our records from back then are gone. Now, lucky for us it's not on our credit, but we still have to deal with these people calling us deadbeats. They offer for us to dispute it, all we have to do is send them proof that we paid it. Really?!
Jan 13, 2012 11:00AM
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Gotta love Americans. When banks and businesses screw people it's capitalism and completely acceptable but when people start to screw them back well the they are just deadbeats. 
Jan 13, 2012 11:39AM
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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.

Jan 13, 2012 12:45PM
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I'm just amazed at how many low crooks that post on here. They bash the debt collectors, including the so called "journalist", yet they have no clue what they are talking about. I'm in agreement that there are several shady characters in the debt purchasing market. But some of the opinions or suggestions in the comments are just setting people up for huge financial problems. If a debt is past the statute, then legally you don't have to pay it. That is a given. But for those that think disputing an account on your credit report doesn't change your ability to get credit, you are sadly mistaken. If you dispute more than one account, they all start to affect your score. And for those that think all debt collectors only work for banks, you obviously have no clue. The majority of debt collectors in this country collect debt as an extension of the company they collect for. This can be trying to collect bad checks from someone who thinks that it's ok to steal money from the local grocery store or gas station, or past due utility accounts. News flash for all you idiots. Guess who has to pay for those losses? Everyone else. Bad debt costs every man, woman and child over 400 dollars extra each year because of increases in prices to offset those losses. It would be great if there were no need for bill collectors. If people would pay what they owe, on time, there wouldn't be a need for them. But so many people think that they are just hurting "big business" because they don't have the sense to know that it's all going to get paid one way or another. I for one am sick of paying for everyone else. 99% of the time, if someone has a problem with the original creditor, they can work with them. If it gets to a collector, it means they were too cowardly or lazy to work it out so I don't feel bad for them at all. There are bad guys in the every industry, but it seems that integrity in this country doesn't exist any longer.
Jan 12, 2012 4:22PM
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In medieval times the people had learned their lesson for awhile and it was actually illegal to go to people that (can't state which people due to terms of use) dealt with credit or debt. Basically it is the same people doing to the U.S.A. to what they eventually did to Italy. The Italians had a pretty good banking system where banks got involved with public works and everyone made a profit. I don't think they allowed borrowing because a loss was just that a loss even for the bank so it made banks and people chose what city works or adventures to sponsor more carefully.
Jan 13, 2012 12:48PM
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For those complaining that the banks screwed them, look what happened when people stopped paying. Our tax money had to make it up...duh.
Jan 13, 2012 12:45PM
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yep..I always pay my bills...by credit cards these days. Always thinking my massage business is going to pick up...and now way in debt and feels like no place to turn...no jobs to be had and doing my best to NOT run on FEAR...tried all kinds of home based businesses in my lifetime...always a lotion or a health product of some sort and then try to sell it...OMG makes my head spin... awhile ago walking out of a CCC office I happened upon a phone # (678)251-4505 that you get paid thru your cell phone  immediately with an FDIC insured product and can make some money with an automated system that automatically runs...just a computer and a cell phone is needed.......so jumped in with no hesitation cause it was not selling or presenting or a health product related...Now I am paying off those darn credit cards instead of charging up more debt...
Jan 12, 2012 4:27PM
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Well any way even if a bank fronted money it was because the gain was worth the risk and everyone benefited and the banks were use to loosing a certain percentage like say fishing ships they sponsored, big statue destroyed in quake ect but everyone got richer and cities got more beautiful. After all something was working due to how beautiful old paintings of Italy looked and you can see it in it's oldest building and artworks.
Jan 12, 2012 3:05PM
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And the Repubs & baggers wonder why we need consumer department, its Corporations like these that need to be watched, so they don't screw the American people.  Wake up Congress, and stop spinning the truth!
Jan 12, 2012 6:40PM
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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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