0% Balance Transfer After Debt in Collections? Good Luck

Dear Let's Talk Credit,

If I have a credit card that's in collections, can or should I do a balance transfer to take advantage of the 0%APR?

- Adrienne

Dear Adrienne,

The answer to your question depends on your goal for paying off this debt and what you can afford to pay each month. For the credit card account to be in collections, you have likely had difficulty making payments for at least 180 days or so. If your financial situation has improved, and you are now able to make regular payments on the account, it's time to do some math.

If you have not already qualified for a card with a 0% APR offer, you may have trouble qualifying with an account in collections. To be approved for most 0% cards you must have a good or excellent credit rating (A FICO score of 630 or higher). So, you may need to work out a repayment plan with the collector to pay off your balance on the account in collections as quickly as you can afford.

If you have qualified for a 0% card, first determine if the credit card that you would like to transfer the balance of the collections account to has a credit limit high enough to transfer the entire balance. If so, contact the new card's issuer and let it know you would like to transfer the balance from a credit card account that is in collections. The card issuer will let you know at that time if there will be any difficulty paying the balance due to the collector. As long as you have the proper account information and name of the collection company, it shouldn't be a problem.

Next, determine what fees are associated with the balance transfer, and the number of months that you will be charged the 0% interest rate on the balance. If you can't pay off the balance within the 0% interest rate period, read your cardholder agreement to see what the interest will be raised to once the 0% offer ends.

You should be able to save money on interest charges by transferring your balance to the 0% rate card, even if you can't pay it off before the interest rate increases. Use a credit card calculator to find out what you would pay in total if you transferred the balance or paid it out with the collector.

Keep in mind that transferring your collections balance is not paying the debt, it is simply moving it to a different account that will you hope save you some money. However, you will need to make sure you are able to make the regular monthly payments of at least the minimum amount due or you could find the account back in collections.

Let's keep talking!