Finally, I've got cash in the bank.

But this comes after a few years of building up a credit card debt of about $5,000 and not paying it off. A collection agency has come after me. I'm sure my credit is worse than bad (I'm too afraid to check). I cancelled the card more than a year ago and have since relied on cash.

And as I suggested, things have been looking up. I've got a great job, I've saved about $10K and I'm currently in the market to find a new apartment. In other words, I could really use an improvement in my credit score, and somewhat fast.

So I'm thinking it might be beneficial to sign up for a new credit card and pay off that debt with the card to attack the credit score at both ends. Maybe this is crazy. Or maybe impossible: Are there rules that bar me from paying in anything but cash or check?

Is there a better way to go about this?

I will be calling the collection agency later today. Any help here will go a long way to getting me back on the right track!

  • 1
    How long has it been since you last paid on the debt? Credit card companies will settle for 30-60% of the debt fairly quickly. But be aware that settling the debt will place a new settled for less than full amount derogatory entry on your credit. Commented Dec 19, 2013 at 17:23
  • You will want to get 2-4 credit cards (eventually), but don't use them (much). Commented Dec 19, 2013 at 17:24

2 Answers 2


First pay off, then look for another credit card.

Re the pay off:

  1. Everything in writing. No negotiating over the phone, no agreeing to pay anything over the phone.

  2. In the pay off statement make sure they commit to removing any negative information from your credit report if you pay in full.

  3. Document everything meticulously. Every phone call, every conversation, every letter sent or received.

  4. Verify. Once you send them the pay-off check, make sure they do what they have to, and if they don't - don't hesitate to contact an attorney.

  5. If you have some spare cash - consider calling an attorney right now.

  • Can you elaborate in any way upon why it is not good for my credit to pay my debt with a credit card and then pay that credit card debt with cash?
    – user9650
    Commented Feb 8, 2012 at 19:19
  • @user9650 because you won't be paying any debt, you would just be moving it from one account to another.
    – littleadv
    Commented Feb 8, 2012 at 19:36
  • 2
    And don't send a personal check. Get a money order or bank issued check to pay. Do not give a collector access to your account numbers.
    – MrChrister
    Commented Feb 8, 2012 at 21:16
  • @littleadv - I agree with your opinion that I should get this paid off and documented as soon as possible, but I'm not sure I agree that I should not do so with a credit card. The way I see it -- though the Internet hasn't helped me confirm it -- I can pay the debt via credit card and then pay off that credit card debt instantly and in full to kick up my credit score (& get rewards in the process). I thank you for your help. Lemme know if there's anything more you can tell me here to get me to understand your opinion.
    – user9650
    Commented Feb 9, 2012 at 23:39
  • @user9650 if you pay it off with your credit card and then pay the credit card off instantly then its OK. Note that it might be recorded as cash advance by your credit card, which affects the interest (higher rate and no grace periods), fees (balance transfer/cash advance fees may go up as high as 5%) and rewards (usually no rewards for cash advances/balance transfers). Take these into account. Also, if you're just considering applying, then having the debt will reduce your chances of getting approved and affect the credit limit if you do get approved.
    – littleadv
    Commented Feb 9, 2012 at 23:50

They want to be paid. You want to have your credit report cleansed.

In the financial industry, everything is negotiable, but only so long as they want something. Once you pay them off, you have nothing to trade and the adverse marks on your credit report will be there forever.

So I would (and have) write a contract with them, have a lawyer review it if you can, that says basically that you and the company both acknowledge that there is disagreement over whether the debt was ever valid. But as an expedient to settlement, you agree to pay $X, and they agree that the debt may not have been valid. And you both agree not to disparage each other, including and especially to credit reporting agencies, and that the company will withdraw and disavow any adverse marks on your credit report.

Separability clause, counterparts clause, blah blah. Usual contract stuff. That's why a lawyer is helpful.

The creditor will go "holy smoke, they'll pay $X (make it pretty good) and all I need to do is remove bad credit report marks? Done!"

Mind you, this only works while the debt is in the hands of the original creditor. Many months after an account is charged off, it will be bundled with other bad debt and sold to a 3rd party creditor. That creditor now holds your debt. Such a settlement offer will only sway that collector, the original creditor cannot be stopped from reporting the bad mark.

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