Why It Is Sometimes A Bad Idea To Pay Off Old Debt
If you had a financial catastrophe in the past and were unable to pay off a debt, you may have received harassing letters and phone calls. But over time, the debt collection calls diminished and you eventually forgot that the debts even existed. Then, you see an increase in your income and you begin wondering if it is now time to finally pay off your debt. However, you should consider a few factors before doing so.
Consider The Statute Of Limitations
After enough time has passed, debt collectors may no longer be able to file a lawsuit in pursuit of old debts. But even if the statute of limitations runs out, the debt will still remain on your credit report. You could wait seven years and then the debt will be automatically removed.
Avoid Restarting Your Debt Collection
However, if you would like to fix your credit score, you might be tempted to start making payments on an old debt. As soon as you do that, you reaffirm the debt. Then, the debtor will have more time to sue you and the debtors will be able to engage in more collection efforts.
Try To Pay The Debt In Full Or Settle It
Instead, it is a better idea to wait until you are able to pay your debt in full. Whether you pay in full or settle your debt does not matter regarding your credit score.
One advantage of paying an old debt is that you prevent that debt from being sold to different collection agencies. When your debt is sold, this can lead to multiple collection attempts being placed on your credit score. Even if paying off an old debt will not have the impact on your credit score that you want, not having a delinquent debt on your credit history will make it more likely for creditors to choose to lend to you. Your debt-to-income ratio decreases, making you more attractive to creditors.
Pay Off The Debt If You Need A New Account
If your old debt is associated with a business that you would like to start a new account with, you may want to pay off the original debt before you open a new account.
Pay It If The Debt Hasn't Been Charged Off
Chances are, the debt has already been charged off and may have been sold to a collections agency. This will have a great impact on your credit score. However, if the debt hasn't been charged off yet, paying it will be more beneficial because it will be recorded as a paid charge-off.
To learn more about debt relief, contact a lawyer like Curtis A. Anderson, Attorney At Law.