Paying Off Old Debt

Very often consumers ask me if it makes sense to pay off their old collection account debts or should their focus be on establishing new, positive credit information on their credit report. While the answer is never straightforward, here are some things to consider:

How old is the debt? Collection accounts remain on a credit report for seven years and six months from the date of the last activity on the original account. This time can be extended by:

• Making a payment on the account
• Acknowledging in writing that you owe the debt
• Agreeing to make payments on the account when it is near the maximum seven years that it can remain on a report. Payments made after seven years may extend the time it is on your credit report
• An oral promise to pay a debt may also revive or restart the clock

What will happen if you do not pay? If a creditor cannot convince you to pay, their next step may be to seek a judgment against you in court. A judgment is a formal decision by the court stating whether or not you owe a debt. If the court decides in the creditors favor, the creditor will have more options available to force you to pay the debt. These include:

• Garnishing wages (taking money from your paycheck)
• Seizing a bank account (taking money from your checking or savings account)
• Placing a lien against real property such as a home

How long is the statute of limitations for enforcing an agreement to pay in your state? Every state has different statutes of limitations regarding how long a creditor has to sue over non-payment of a debt. To find out how long a creditor has to take you to court in your state, visit the Consumer Action Website at http://www.consumeraction.gov/state.shtml and then find and contact your state’s agency.

Finally, most people feel very strongly that they need to repay their debts. It is important because you’ve received the services or goods and you want to do what is right. It may help to prioritize your debts; if you are unsure what debts should be paid first, contact a credit counselor who will talk with you about your situation and help you come up with a plan specific to your needs. To locate a credit counselor call or go online to the Association for Independent Consumer Credit Counseling Agencies (AICCCA) at 1-866-703-8787.

I hope that this information has helped to make the correct decision for you. For further guidance in making this and other decisions regarding managing your debt, contact a certified credit counselor to discuss your options.

Published Sep 28, 2010.