Who profits from higher interest rates?

I am confused by the laws concerning un-paid debt. In college I got into some credit trouble and never paid the bills. It has been over 7 years but it is still on my credit report. I am still getting threatening letters from collection agencies. Other than paying full amounts on these very old bills are there ways I can get the collection companies to work with me? I am willing to pay on these bills, but after all this time you would think they would work with people to get them off the books.
-- Nick M., Fort Wayne, Ind.

We’re not sure what you mean by “work with” you. No matter how old the debt is, you still owe it — unless you go to court, declare bankruptcy and have the debt cleared by a judge.

In some cases, you may also be off the hook if the statute of limitations applies. You should check with an attorney to see to see what the law says about your circumstances.

Of course, people can and do get into financial trouble beyond their control and find themselves unable to repay a loan. Some banks will renegotiate the terms — after all, getting paid late is better than getting paid never. But no lender is going to very receptive to this idea if you wait seven years to contact them.

The laws governing outstanding debt are pretty clear: if you borrow money, you're expected to repay it, plus interest, according to the schedule you agreed to. We get the same spam you do from shysters claiming to have found loopholes that "erase" your debts. Do yourself a favor and hit the delete key on these.

Lending is a business. When the lender originally decided to “work with” you — by lending you the money — they expected to get their money back. To be sure, banks and credit card companies to do a horrible job of spelling out  specific terms and conditions in writing, especially in failing to disclose a blizzard of hidden fees and nuisance charges. But the basic concept behind borrowing money is pretty clear.

Though there are laws and regulations designed to protect consumers from predatory lending practices, the terms of most loans are governed by a contract you sign when you borrow. If you have any questions about these terms (we're assuming you at least tried to read the contract), ask. If you don't get answers you understand, keep asking — or find another lender.

It turns out that many loan contracts include language that says if you don’t keep up with the payments, you may owe the full amount all at once. If those are the terms, it’s not unreasonable for the party now on the other side of the loan to try to collect in full. In any case, it sounds like the lender has sold off the loan (which they usually do for less than what you borrowed) to a collection agency. If that’s the case, the original lender is never going to get all their money back.

And unless you’re also getting hit with seven years worth of compound interest, you’re getting a good deal. Because of the effects of inflation, the 2006 dollars you use today to pay off your debt are worth less than the ones you borrowed in 1999. By paying the “full amount” of a 1999 loan with 2006 dollars, you’re really paying off only about 80 percent of the loan.

You may, in the end, be able to work out a payment plan. But we can understand how the person on the other end of the phone may be a little skeptical in dealing with someone who just walked away from a loan and waited seven years to start thinking about how they were going to pay it back.

It seems that the most effective economic export the U.S. has is warfare. We seem to be less competitive in other ventures, but war seems to be an economic winner for our society. Do I have that right, or are there other things we export as successfully? compared to Japan, Germany, China, etc.
-- Jon R., Chicago, Ill.

Blue jeans, jetliners, movies and video games come to mind.

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