Ask The Money Coach

Posts Tagged ‘old debts’

Q: I Feel Morally Obligated to At Least Settle My Old Debts. If I “Settle” a Really Old Debt That Has Long Since Been Deleted From All Three of My Credit Reports Does That Reactivate That Debt and Put It Back Onto My Credit Report?

A: Depending on the type of debt in question and what the creditor or collection agency does with the account, it is possible that paying an old debt could cause it to be either re-activated or put back on your credit report. Since you said the debts have “long since” been deleted from your credit reports, I assume that those debts are over seven years old. Sometimes when people repay such old debts, or workout payment plans on really old bills, a collection agency will “update” the “status” of the credit account. It may now show as “Paid Charge Off,” or “Paid Collection Account.” Neither of them will improve your credit rating — especially if the items were previously eliminated entirely from your credit files.

It is very admirable that you are conscientious enough to feel morally compelled to at least settle old debts. However, I would encourage you to leave those old accounts alone. The truth is that even though you did not repay the financial obligated you may have owed, you certain did pay another price: in terms of your credit rating, and those items previously being on your credit reports for at least seven years. Additionally, having negative items on your credit probably cost you dearly in other ways. You probably paid higher interest rates for everything where you had to borrow: mortgages, credit cards, auto loans, student loans, and so on.

Also, please recognize that we live in a society that doesn’t send people to jail for past due debts or punish them for life over past financial bills. There’s a reason – many good reasons, in fact — that there are legal limitations regarding how long creditors can pursue you in court or report negative information to the credit bureuas. Bottom line: don’t be so hard on yourself about those past old debts. Just resolve to do better in the future, and don’t allow yourself to be in a situation where you have other debts that you can’t afford to repay.

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Q: I Opened A Credit Card Back in College in the Year 2,000 and I Have Never Paid it Off. Should I Pay It or Not?

A: If the credit card is still open, then by all means pay if off if you can. But I think your question is referring to an account that you had a decade ago that went delinquent because you never paid it at all. If that’s the case, my advice to anyone in this situation is this: if you can afford to pay a debt, then go ahead and do it. That’s the right thing to do because you did, after all, go out and make the charges. No one forced you or put a gun to your head to make you spend on that credit card. Also, you will learn a good financial lesson in honoring your obligations. But in other instances, especially in this tough economy, certain old debts are best left in the past.

Some Old Debts Are Best Left in the Past

If you are cash strapped and really don’t have the money, or it would be a big financial burden to pay that old debt, then from a credit management standpoint, you should probably just let that old debt stay in the past. Negative information, such as a late payment or collection account, can stay on your credit report for seven years from the date of last activity. So if you last used or paid that card in, say, the year 2003, then in 2010 it will fall off of your credit report. Also, you should know the statute of limitations for credit card debts in your state. They can be anywhere from 3 to 10 years. Once the statute of limitations expires, a creditor can’t sue your, try to garnish wages or get a judgment against you for non-payment.