She might consider prosper.com. I have no personal experience, but I've read good things about it. Also, depending on the value of her car and any co-signers, a local credit union might consider loaning her the money. Either way, the interest will be much less than the horrible payday loan places.

As credit card debt is unsecured, I don't see how they would get anything other than a judgment against her. She should be able to work out a payment plan with them if she tries. Even though they are saying she has to pay the full amount, they will most likely work with her. Besides, it is probably a collection agency and they feel they can bully her into making payments so they can score an easy collection on debt they paid pennies on the dollar for.

Without some additional info it is difficult to provide anything other than blind suggestions. But here goes...

1. How much is Katie's car worth? Usually people purchase too much car. So could she sell it and get something cheaper?
2. Is she on a budget? If not, she needs one NOW! Then she will know what her income and outflow is and can apply more cash to her debts.
3. It sounds like she is working full time, but does she have a second job? Another job will improve her income and limit her outflow as she will not be spending time and money going out with friends. Yes this will put a crimp in her lifestyle, but she can get a jump on her debt.
4. Forget being uncomfortable about asking family for money. The only thing that should stop her is if they are not able to loan her the money. Otherwise, she needs to swallow her pride and ask.
5. If she has been keeping up with her other debt, she might be able to slow payments with them. Or even call them and ask if they will waive a payment as a courtesy. Most will as it just means more interest for them. But it may give her some breathing room for dealing with the forgotten credit debt.
6. She should not go to the payday loan place. If she is already paycheck to paycheck this will only cause her further headaches.

Finally, I don't know if this was her statement or yours "Going to court means losing her car and having her credit ruined." But if she truly had this card in college, her credit is already trashed with at minimum an extremely past due, if not charged-off balance. So that bell has already rung.

I think that perhaps she might be panicing a little too much. Just remember:

1) Credit card collectors lie.
2) Courts are really slow.

So, there is no chance that she is going to court in 2 weeks. Has she received a summons? Even if they do sue her, that will just mean garnishments, they have no claim on her car.

She should scrape up as much money as she can over the next few weeks, and then when has about half of what they want offer them a lump sum settlement. Or if she does get the summons, then call the lawyer and offer to settle with them. They don't really want to go to court if they don't have to.

Do not get a high interest loan, it will not help anything. Getting sued is not as bad as getting in even further over her head. Chances are pretty good that the collection agency added a lot of bogus (and illegal) fees and is trying to scare her into paying. She should go to http://creditboards.com/ and ask for help in the credit forum. They have a lot of experience dealing with collection agencies there. She will get better advice there than at most personal finance sites not specifically aimed at people with bad credit.

Be careful...Is the debt even collectible? If it is from college and over 3 years old, it may have passed the statue of limitations (need to check the state limitations) and she is being hit with "zombie debt" - if this is the case, any payment on it will reactivate it and she will be responsible to pay it.

This is pretty typical. The collector probably doesn't have too much power other than collecting the actual debt. Getting a sleezo short term loan is a bad idea, but not trying to make some payment arrangements to stop any further screwing of her credit it too. My solution would be to make arrangements to pay the debt off on a monthly basis and establish some good reporting that will mitigate any damage that this old debt has. If she wants to really play hardball, she can say she will pay them off if she gets it IN WRITING that they will make regular reports to the Credit Bureaus stating that she is doing so. A settled trade-line doesn't look a whole lot better than a charge off.

Keep in mind that, in most states, the collectors cannot sue her so long as she is making some sort of regular payment. They will say whatever they think that they can get away with, which often includes "payments are not an option," or something like that. If that is the case, she needs to start sending in at least the amount that a credit card payment on that balance would be, which would be $240/month at a 4% balance. Considering that she is paycheck-to-paycheck, something has got to give. I would move toward increasing income at this point, so that the debt can be paid off more quickly. Once it is paid off, then she could work on paying off pre-existing debts and building up an emergency fund so that she is more removed from this sort of problem, in the future.

It definitely sounds like an abusive debt collector. I would do what Saving Advice mentioned first and determine if the money is even able to be collected.

Second, I had a similar thing happen to me with an old business debt. I closed a business and had a small balance outstanding with a creditor I had forgot to close out. Shortly after the business address was no longer good, we had moved two times since then so our address on file was incorrect.

Finally I received a letter from a collection agency about this debt and it stated almost exactly what this case sounds like. That I owed X amount in 30 days or it would be forwarded to the legal department and a court date set. I was confused as to why this is the first time I had heard of this in over a year so I contacted them. They said they have been sending notices to my old address for a year and never received a response and finally tracked me down.

That being said, I told them to go fly a kite. I wasn't going to let them pressure me into paying the full amount plus all their outrageous fees they have tacked on over the past year. So I just spoke to the vendor directly and explained the situation. They tried to claim that once it was in collections they wouldn't negotiate with me. I made it clear that I wasn't going to pay all of their fees simply because they claim they couldn't find me for a year (which I find hard to believe considering I had mail being forwarded after moving just fine). If they wanted the money they could work with me directly.

Bottom line is that the collectors were horrible people. Harassing phone calls, threatening letters and nothing actually came from it. A call back to the vendor eventually resulted in a peaceful resolution.

And honestly, if they wanted to take me to court for a mere $1,500 bucks, by all means they could have but I knew that money was not a high-priority for them. This whole process took about 8 months to finally get resolved, so even though I didn't pay within 30 days I also didn't go through the legal process as they promised.

This isn't to say Katie should just call their bluff, but I would distance myself from the debt collectors and contact the actual lender to see what options are available provided the debt is valid and within the statute of limitations. More than likely they will be somewhat understanding of the situation and be willing to work with her. They would rather have their money than be hassled with collection agencies and the legal system.

This is bogus. The same story with a different name was posted to Get Rich Slowly today.

Either that or the friend can't keep her story straight because it is really her.

First she needs to find out if this debt collection agency is registered in Utah by calling the Division of Corporations and Commercial Code in Utah (801) 530-4849
I would also advise a call to the Division of Consumer Protection in Utah - Toll Free in Utah: 800-721-7233

Thanks to everyone for the great comments so far!

Bobby: It's not bogus; I changed the name of the person in the story. I guess it was bound to happen that someone looking for advice would email two (or more) bloggers and two would decide to pose the question to readers.

Yeah, I'm surprised I haven't seen duplicate question postings before now. Part of this may be because I usually delay "ask the readers" questions by a couple weeks. This one sounded time sensitive, though, so I posted it now. I'm glad to see good advice coming from both communities!

The Statute Of Limitations in utah for a credit card debt is 6 years from the date of the last payment. But if you call the collection agency or the credit card company and even discuss a possible payment, the statute of limitation clock starts again.
These debts are called 'time barred debts'. If the debt falls into this category, write a certified letter back to the collection company and inform of this and that you are not obligated to pay. All of these facts can be found on suzeorman.com.
You can't go to a court unless you have been sued. A process server must come to your house and actually serve you. Collection Companies plan on your not knowing the law. Obviously, they are correct.
Once you are sued, you have between 20 to 30 business days to answer the suit. You will need an attorney.
If you do not answer the suit, you will lose the case by default and a judgement will be issued against you. This judgment gives the creditor to seize your bank accounts, garnish you salary (but no more than 10% of gross pay. Check your state's requirements) and also seize personal property and put liens on your property. It's not a good thing.
if you have been sued and don't have the money fo an attorney, you can contact the court clerk and ask for his/her 'free' advice on what you should do.
Fear is a strange thing. Don't let it take control over you. Get the facts and take action.

Thanks for the clarification Flexo. My apologies.