Ask the Experts: Should I ignore this debt until I get my tax refund?
“I'm $2,500 in debt because of a credit card I used to pay bills with when my boyfriend lost his job unexpectedly. I had made my payments on time every month until life threw me that curveball. I now haven’t made any payments since September. I now need to call recovery in order to even make a payment. I’m wondering if I should wait until I get my tax refund and pay them off in full or should I get in contact with them now and try to pay something while I'm waiting for my taxes. I’m so confused and distraught because I had been so financially responsible until this point. I don't know if they can put a lien on my house or what could happen. Please help me figure this mess out.” –Shannon
Hi Shannon – I’m sorry to hear about your setback and all the stress it’s caused you. Falling behind with a creditor (for any amount of money) is an unpleasant and often harrowing experience.
I would suggest you contact your creditor right away. The first thing you want to determine is whether or not the account can be salvaged. You noted that you needed to call recovery to make a payment. That could mean one of two things: either the account is simply being managed by the creditor’s internal collections department and can still be brought current, or the account has been closed, charged off, and potentially sold to a third party collection agency.
If the account has not been charged off, it’s worth your while to begin making payments again. You might not be able to bring the account current or pay it in full just yet, but you can at least prevent the account from falling further behind. This way when you get your tax refund and pay off the balance, you’ll have minimized a good deal of the potential damage to your credit.
If the account is already charged off, however, it’s up to you to determine how to proceed. Here are a few points to consider when it comes to managing a charged off debt:
- Debt collectors are allowed to continue adding interest charges to a collection account. This means that the longer you wait to pay off an old debt, the more it may end up costing you.
- Debt collectors are also often willing to negotiate a payoff as long as you’re able to make the agreed upon payoff in a small number of payments. Basically, the fewer the number of payments, the less you’re likely to end up paying.
- A creditor cannot place a lien on your house in pursuit of an unsecured debt, such as an unpaid credit card bill. The worst a creditor could potentially do in your situation is take you to court and ask that a garnishment be placed on your wages to begin repaying the debt.
Ultimately, you want to arrive at a point where the balance is zero and the creditor (or collector) is satisfied. Whether or not you decide to make payments now or wait until you receive your tax refund, there’s really no benefit in ignoring your creditor completely. Keep communications open. You don’t want to be caught off guard if they do decide to take more drastic steps to collect your debt.
Dealing with debt collectors can be scary and agitating, but don’t lose hope. Like most problems, your best course of action is to understand your options and make a plan that best suits you.