Like countless others, reader Ryan is in debt. His debt is to the tune of $1,364. He received an interesting offer from the debt collector who is offering “debt reduction” in the form of a pre-approved Visa card in which his $1,364 debt would be reduced to a $1,200 balance if he accepts the card. He would need only to to pay off the balance under the terms of the credit card to eliminate his debt. Ryan wisely wrote to us to ask if this is a good idea. Actually Ryan, it’s a really really really bad idea. His letter and our advice, inside…

Dear Consumerist,

Unfortunately, this blog did not exist when I was 21 and trying to make it through college. I was poor, and the fed was stingy with the financial aid. So, I turned to credit cards and it is the biggest regret that I have. Debt collectors call daily, and I know just by the look of the envelope if there’s a collection notice in the mail. Thankfully I have a place to live and a car that runs fine, so I feel as though I don’t need a good credit score (but I’m sure it would help in the future).

Lately I’ve been getting pre-approved credit card offers in the mail, but they’re of the type that already have a $200 balance on them before you even get them. I’ve already had enough trouble with credit cards, so I immediately throw out these offers. Today I got what looked like another one of these, but after reading the notice it turns out that it’s not quite the same.

The offer I received today is from one of the companies that bought one of my debts. There is a picture of the offer on my flickr account here. In this offer, they tell me that I can have my debt placed on a Visa card and pay off the card. The interest on the card is 19.9% and there is an annual fee of $35 which is waived for the first year. I have such bad credit that I don’t worry about identity theft, so these terms are better than anything I’ve seen in quite some time.

So, I’m just wondering if this is a good idea. The notice says that I have until July 7th to accept this, so I’m in a bit of a rush to find out if it’s worth it. If so, I think the first (and only) place this card would go is into a block of ice.

Thank you!
Ryan

It may seem like an attractive offer on the surface, your debt of $1,364 gets reduced to $1,200 if you accept the card. But this difference will most certainly be mitigated by fees and interest that this card has cleverly implemented. This particular credit card is probably one of the worst credit cards ever, it is riddled with booby-traps designed to hit you with fee after fee. Here are some of the pitfalls you should be aware of:

• Simply by submitting the application for the credit card, you will temporarily get 3-5 points subtracted from your credit score, but this is true with any credit card.
• According to the terms, your first minimum payment is $37 which is due 20 days after you receive your statement. If you don’t pay in time there is a $19 late fee.
• This card is designed to make you spend over your credit limit. Your balance starts at $1,220 and the credit limit is $1,270. Considering your interest would be about $20 dollars a month at 19.9%, a small purchase could easily put you over your limit, incurring an additional $19 fee.
• According to the terms, if you miss a payment in the first 3 billing cycles, the card will be revoked and your original debt of $1,364 will be reinstated even if you have paid off some of the balance already.
• Default rate – We haven’t seen this card’s full terms and conditions but typically if you violate one of the conditions in the agreement such as late payment, NSF check or charging over your limit, your interest rate could be jacked up to as high as 36%. This is true with any card.

Naturally, paying off your debt is the best idea, short of that, this card is nothing to mess around with. They are just trying lure you with a shiny piece of plastic so they can get their hooks in deeper. The only way a card like this would be useful is if you made a large payment on it every month. Of course, if that were possible, you probably wouldn’t be in debt in the first place.

If you need assistance paying your debt, each state has non-profit angencies that can assist you, usually for a small fee. In many cases, they can sit down with you and help you work out a monthly payment plan without any nasty 19.9% interest rate. Some websites that can provide you with more information are:

http://www.nfcc.org

http://www.cccsatl.org

http://www.aiccca.org

http://www.creditcounseling.org

One other tactic involves trying to cut a deal with the debt collector. They pretty much assume they won’t be getting all of their money so they are often agreeable to reducing your balance if it gets paid within a certain amount of time. However, not all debt collectors operate in this way. Good luck, Ryan.

(Photo: Getty)

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