Oran Hall | Credit card woes

QUESTION: I would like to know how best to approach this matter. There is a credit card from a major bank from 2011 that’s still showing up on my credit report. The card was issued in 2011 and expired in 2015. The original balance of $260,000 on the said card on my credit report now shows over $1.4 million owing. Please help.

— Robert

FINANCIAL ADVISER: You have not said that you made a payment on your credit card, so I am assuming that you have not paid since 2011. Eleven years!

I find it interesting that you incurred the debt in 2011, the same year the card was issued. Did you understand then, and even now, how credit cards work?

There is a vast difference between borrowing from a financial institution and borrowing from family and friends. Financial institutions insist that money borrowed from them is repaid and make an effort to collect.

Generally, a debt remains on your credit report for seven years after it has been repaid, so one that has not been repaid will live on your credit report, and this is bound to have very serious repercussions for you.

These are unsecured and very high-risk loans for financial institutions, thus the very high interest rates. The other reason that your debt has reached that level is that the unpaid interest has been added to the principal sum each time you have failed to pay, thus increasing the interest and principal sum. This will keep happening if the loan remains unpaid.

The issuers of credit cards are serious about collecting on the loans they make by way of the credit card facility. There are several cases in which they may require that immediate payment of balances should be made, for example, if the customer fails to make all required payments by the payment date, if the outstanding balance at any time exceeds the credit limit and if the customer fails to abide by any other terms of the cardholder agreement.

If the cardholder fails to comply with the request of the issuer for full payment of outstanding balances on the account, the financial institution may use the services of a debt collector, an attorney-at-law, or both, to obtain payment. The cost of these services becomes the expense of the cardholder and is added to the debt.

When a lender assigns a delinquent account to a collector, the collector calls, and the debtor responds by meeting with the collector to make arrangements to settle the debt. The collector will look at the debtor’s circumstances and ability to pay so that they can both arrive at a plan for the satisfactory repayment of the debt, plus the collector’s fee.

The payment need not be a lump sum, but the intention is that the debt is paid off in the shortest possible time. The collector tends to consider the position of the debtor but equally considers the desire of the lender for settlement in good time, but a quick settlement is very important in situations in which interest is still accruing on the debt.

You have not said that the bank took any of the above actions or that you received any statements from the bank showing you increases in the balance over time, only that the credit report shows the amount of $1.4 million.

It is unwise to believe that credit card and other debts reflected on a credit report will just drop off if they are not paid, and credit card debt is not cancelled when the card expires. The debt on the account carries over to the new card.

Did the $1.4 million come to your attention because you needed to get a credit report to secure a loan? It is such a pity that you waited so long to see how to deal with the matter.

Whatever might have caused you to get into the situation you are now in, it is important to take steps to correct it because the debt will remain on your credit report and severely limit your ability to borrow. Further, paying a debt is the right thing to do.

I suggest you engage with the bank to make arrangements to pay off your debt. Another option is that you could approach another financial institution to lend you funds for that purpose because the bank to which you owe the debt will generally not lend to you to liquidate a bad debt on its books.

You have a hard road ahead, but you must act now. It is important to put your financial standing on solid ground.

- Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. finviser.jm@gmail.com