How do I get a credit card with all my debt?

January 11, 2010 5:24 PM

I want to get a credit card soon, but I am unsure as to my credit situation due to some mitigating factors, including college. Long story inside.

Start at the beginning: in 2006-2007, I attended a college. I currently owe on a $3000 Perkins loan (I think) and I owe the school for back tuition in the amount of $9000 or so. They sent the bill to collections, which has tacked on an additional $2000. I made 3 payments of $150 when the collector came calling in the summer of 2008, but then fell on hard times and began avoiding the collector's calls. I moved away from the address they had and left no forwarding address.

I was recently informed that it looks like someone came to my parents' house to try to serve me papers. What those papers were I do not know, as when my parents said I didn't live there anymore the person left.

I have no record of the payments I once made. I have contact info for the collections agency but I am afraid to contact them for fear of what will happen. I really cannot afford to have my wages garnished.

I want to get a credit card soon but I don't know what all this has done to my ability to do that, and I am unsure how to find that out. I checked one of my free credit reports. It has three entries, the Perkins loan and two other loan that were opened, approved, but then I never got the money and the loans were closed. Those two are marked as Paid/Never Late, while the Perkins loan is marked as Open/Never Late, Deferred, Status Unknown.

I live mostly paycheck-to-paycheck and I want a credit card that has no fees, preferably has rewards but I understand I might not qualify for that, and will allow me to improve my credit score. I plan to only use the card for purchases I would otherwise be making, and I would pay it off in full every two weeks or so, so the interest rate won't matter to me.

Basically, my question boils down to:

1) Should I just apply for a credit card and see what happens from there? Any suggestions for good first-timer cards?
2) What should I do about this outstanding tuition loan? Is it likely I am being taken to court?
3) Should I be figuring out how to pay this Perkins loan, or wait till it is no longer deferred? Who would I talk to about making payments? It is listed on my credit report as being the school.

I have a throwaway email at credit_hell at yahoo.com if anyone needs more info or wants to help privately.

posted by anonymous to Work & Money (17 answers total)

First, pay for and get your credit report. See what's on there.

Then, do what you have to in order to pay back what you owe.

Finally, when you're in the clear and ready to get a credit card -- don't, unless you've also developed the kind of discipline and sense of responsibility necessary to manage a credit card effectively in order to obtain a good credit rating without drowning in debt.

If you skip steps one and two, and disregard my warning in step three, in a year you'll be back here on askme with the same question, only this time it will include an epic amount of credit card debt that makes your current predicament look like child's play. Honestly, if you're living paycheck-to-paycheck, you do not have the discipline to manage a credit card nor the money to get away with having no discipline. It would be irresponsible for you to have one, irresponsible in the sense that you will do yourself a significant amount of harm.

As for the papers being served: no idea what to do on that.
posted by davejay at 5:44 PM on January 11, 2010

You might have better luck asking this question at CreditBoards.
posted by dilettante at 5:53 PM on January 11, 2010

You probably don't want to obtain a credit card unless you're also willing to tackle your existing debts.

If you're refused, talk to your bank about getting a credit card where you pay $500 and they hold onto it, giving you a limit of $500. It will help build your score in the meantime.

If you can't afford the $500, you really shouldn't have a credit card.
posted by furtive at 6:54 PM on January 11, 2010

Finally, when you're in the clear and ready to get a credit card -- don't. Cannot stress this enough. Get rid of the stupid things and pay cash. If you can pay for everything you buy in three months in cold hard cash, and still have 6 months of expenses saved up, then you're in a better position to get a card.
posted by deezil at 6:55 PM on January 11, 2010

Hate to break this to you:

Someone who is unwilling to pay back the money they have borrowed, to the extent that they are avoiding their creditors, is not mature enough to manage their own money. That kind of person should not have a credit card. You are that kind of person. And I'm not sure you realize quite how screwed you are financially.

Some questions for you:

1) Do you honestly expect you can get away with avoiding your student debt forever?

2) When the collections agency finds you (and they WILL), you will need to start paying back your debts. Won't that be even harder to do if you have credit card debt on top of that?

My advice is to contact the collections agency and make arrangements to pay back your debt. Keep in mind that the amount you owe has probably increased because of late fees etc. If you can't do that, then you need to talk to a bankruptcy lawyer and see what kind of options you have. Whatever you do, DO NOT get a credit card.
posted by twblalock at 7:38 PM on January 11, 2010

Have you considered bankruptcy? It seems better than hiding from creditors.

After you deal with your existing debt, you could co-sign on a credit card. Cut up your card before making your first purchase, and let your very gracious friend/family member re-build your credit by responsibly using their card.
posted by domnit at 7:39 PM on January 11, 2010

I agree with those that say stay away from the credit cards.. You already have a history of being unable to manage your finances and credit cards will just make it worse.. A lot worse.. It has taken my 22 year old daughter 2 years and counting to dig out of a situation that is nearly identical to what you just described..

Cash.. Cash only.. At least until you have cleared your past debt and learned to manage your money better.. I hate to sound like a DR fantatic, but you might want to give Dave Ramsey a listen to for a few weeks. http://www.daveramsey.com/
posted by SteveG at 8:01 PM on January 11, 2010

(1) Bankruptcy will not eliminate student debts, so don't listen to anyone who tells you to declare bankruptcy

(2) applying for a credit card requires supplying a valid address.

(2a) supplying a valid address means the collection agencies will find you.

You are fucked here.

Man up, pay your debts, learn to handle credit.

Then, and only then, consider applying for a credit card.

And then don't apply for one.

There is no valid answer other than this.
posted by dfriedman at 8:17 PM on January 11, 2010

Actually, some kinds of student debt can be discharged. The OP owes "back tuition" to the college, whatever that means. It might not be a loan. Maybe the OP was billed for tuition and never payed.

Besides, talking to a bankruptcy lawyer will clarify what the options are. Not everyone who talks to a bankruptcy lawyer ends up declaring bankruptcy.
posted by twblalock at 8:21 PM on January 11, 2010

I plan to only use the card for purchases I would otherwise be making.

Then you have no need for a credit card.

If you are getting the card merely to improve your credit rating then dream on. Even if by some miracle someone gave you a credit card, you have a collections agency chasing you; no amount of paying your credit card bills on time is going to make up for that.

Sorry to be blunt, but it is clear that you should not own a credit card.
posted by jonnyploy at 7:35 AM on January 12, 2010

From the sound of what you said was on your credit report - "Those two are marked as Paid/Never Late, while the Perkins loan is marked as Open/Never Late, Deferred, Status Unknown", it actually sounds like you probably have a pretty decent credit rating, because it's not showing any late or missed payments. However, if they're trying to serve you papers, then that could change pretty quickly, because once a judgement is served, it will end up on your credit report.

So my advice would be apply for a credit card ASAP, before it gets on there. But I echo other's concern that you may have trouble handling credit, so you need to be VERY strict with yourself. Find some particular thing you would be buying anyway but that has no temptation to splurge, and use the card only for that, and pay it off in full each month. For instance, use it only for gasoline purchases. You're not likely to buy extra gas just because you're using a credit card, so that's a good item to charge.

The purpose of having this credit card would be first and foremost, so that you do have some credit available to you in case of a true emergency. If the car breaks down, you need to be able to repair it, for instance. Also, once the court judgement hits your credit report, you having an established credit card in your history will help your score improve.

As to which card to apply for, I have heard that HSBC isn't terrible, and that they have given credit cards to people (albeit with low limits) when no one else would. They also have a rewards program.

HSBC Credit Cards

But remember - ONLY use it for a set item. You're already in over your head; you don't want to make it worse.

If you get denied for that card (I don't think you will, though), try applying for a Target card. They gave me one when no one else would. And one month when I didn't get my bill and thought I hadn't charged anything that month, they called me up and basically said hey, you missed a payment the other day, do want to go ahead and take care of that? They didn't charge me a late payment fee or put it on my credit record or anything.
posted by fairywench at 8:50 PM on January 13, 2010

The odd thing is that you don't express much of a sense of responsibility for the debts you're currently avoiding, as if they were things that happened to you rather than money you took with an agreement to take it back. Credit reports and cards and all that aside, the reason people here are being a little harsh is that very absence of remorse or intention to make it right by paying off your back debts. That's what people are picking up on as immature and irresponsible here.

Who do you think is responsible for those debts? Because you know we all end up paying for it. When you default on student loans and college tuition, that hurts other students who could use that aid.

Times are tough, and all that. Doesn't change the ethics of the situation.
posted by fourcheesemac at 11:40 AM on January 14, 2010

Okay, OP here. I was going to just leave this anonymous but two things happened that caused me to change my mind. The first is that I feel the need to defend myself. I want to pay back my debts, but I was young and really, really stupid when I got into them and now I don't know who to pay or how to get in touch with them or anything. Maybe that was the part of my question I need to focus on. I am now making money where I can actually afford to make decent sized payments, but I don't know how. I need help. I need to be spoken to like I'm a fifth-grader.

The other thing that just happened is that I just started an application for a new checking account, and got denied. This scares me to death. I don't know what's going on here and I need help. If anyone is still reading this thread, please. Help me figure out what to do. Please.
posted by Night_owl at 8:58 AM on January 15, 2010

Hey OP, sorry if I was a bit harsh on you. I think you didn't intend to convey a who-cares attitude, just that it came out that way. You really do not seem to understand much about money, which it's good to admit or you'll fall into an impossible hole and spend your whole life struggling with this stuff. You clearly need to do some basic learning.

I would contact the financial aid office at the school you attended to get help setting up a realistic repayment program for the tuition loan. If they're not the right people, or the amount has been sent to collections, you will be directed to the right contacts, I'm sure, by fin aid. Educational institutions -- especially public ones -- tend to be a little more accommodating of situations like this. It might be possible to have them withdraw it from collection if you set up a payment plan.

The student loan was probably made by a bank, sold to an aggregator, and sent to collections. I am not very knowledgeable about how you approach this. It is a federal loan program, so there will likely be reasonable limits on collection costs. You should probably contact the federal Perkins loan office (www.ed.gov/programs/fpl) and ask for direction.

One interesting possibility: I believe Perkins loan debt can be forgiven if you enter certain professions, such as K-12 teaching. You might kill two birds with one stone here by taking some time to think about what you want to do for a career. Your profile says you work as a barista -- honorable, of course -- and your question says you live paycheck to paycheck. I've been there. We've mostly all been there. And these are very hard times to be a young person with significant debt entering the workforce. But you must still consider your future as a long-term project. That includes not leaving debt messes behind you, and continuing to improve your income and career satisfaction. Basic money skills are so essential to doing that. But your generation (and it began with mine, I'm guessing I'm twice your age) has come of age in an era when the Depression-era standards for personal financial competence have disappeared (they'll come back because there millions of young people in your situation right now, learning the hard way, which is how we always learn such things). At the same time, personal financial management has become infinitely more complex than it was even 20 years ago, and become much more challenging to master.

There have been lots of AskMe threads on developing basic financial competence. But the old principles apply even when debt has become embedded in our culture and (until very recently) as easy as drinking a milkshake to get. You might benefit from checking out Suze Ormann, despite her cheesiness factor, because she gives good sound advice to ordinary people who don't understand the structures in which they are enmeshed financially. She's got a website, a radio show, a TV show, and several books. There are a million financial gurus out there, but what you need to learn isn't fancy and shouldn't cost you anything to learn. The fact that you have been denied a checking account is indeed a bad sign that something is amiss with your financial management skills. The fact that you didn't have one before is too. And the very last thing you need is a credit card, dead serious.



At every stage,
posted by fourcheesemac at 8:44 AM on January 16, 2010

Sorry, I truncated that by accident. Meant to say:

At every stage of the process, when you deal with bankers, school administrators, debt collectors, etc., be straightforward that you a) want to make good on your debt; b) have fallen behind out of economic hardship and lack of knowledge rather than lack of concern with your credit and responsibility; and c) what you could actually afford to do in terms of payment. It will do you no good to be in a situation where a plan to recover from the debt will subsequently fail (which is why I believe you should definitely avoid those "credit counseling" services some will recommend, and which advertise all over the place for a reason, pretending to be non-profit, which they mostly are not). Bankruptcy may be an option, but you'll need a lawyer to determine that. And it may not discharge federal or student loans anyway.
posted by fourcheesemac at 8:49 AM on January 16, 2010

The fact that you didn't have one before is too.
I do have a checking account. I have had this checking account since August 2006 and have never gone overdrawn. I was looking to switch banks since this account has $4/month in fees, and I was reading recently that there is no reason I should put up with that since most accounts do not have fees as long as there is adequate activity on the account, which I do have.

Thank you for the help, fourcheesemac. I just went through finances and it looks like I can spend $150/month on debt without putting myself into a scary place with regard to current bills. I am thinking I should get in touch with the school or collections agency so I can deal with my big tuition bill, but I was wondering if you (or if anyone else who is still reading this) think I should try to find and pay off the Perkins loan first.

I'm also considering making a cut or two elsewhere to get some therapy. I think I'm depressed and I know I'm feeling overwhelmed by what is going on in my life right now. Do you think it would be a waste of resources to do this and that my money could be better used to just throw every penny I can at the debt?
posted by Night_owl at 4:12 PM on January 17, 2010

Well, the loan you pay off first should be the one with the highest rate of interest.

The problem is, you will probably need to pay off both of the debts at the same time.

Collections agencies are usually willing to make deals on debt. They bought your debt for less than it is worth. That is how they make a profit. They should be willing to lower the amount you owe in exchange for a guarantee from you that you will stick to a payment plan. You really need to negotiate with them.

---

Now, in a previous post you mentioned that you were turned down for a checking account. This might be because you have a low credit score, or because the bank knows about your debts, or both. You should get a copy of your credit report and look at it.
posted by twblalock at 6:43 PM on January 17, 2010