What To DO With Old Debts

If you have old debts, which have outlasted the statute of limitations, you can choose to pay them, if this will make your life easier. And it might—read on.

Mainly, paying off old debts can improve your credit score; delinquent debt can appear on a credit report long after the statute of limitations runs out (this is the length of time companies are legally allowed to sue over debts—in most states, this is six years or less). But a debt stays on a credit report for seven years, regardless of legal status. If you choose to repay an old debt, after it's gone to a collection agency, it won't be removed from your credit report (until the seven years run out), but it should improve your creditworthiness in the eyes of lenders. And, if you're planning to apply for a big loan (car, mortgage, etc), this can help. "When you're applying for a loan that is rate sensitive, for example, it might make a few points difference in your interest rate if you pay off your time-barred debts," says Maxine Sweet, vice president of public education at Experian, one of the three major credit reporting bureaus.

Unfortunately, potential employers can view your credit report (but only with your permission); if it's worth it to you, that's a reason to pay an old debt—but the debate around why employers should be able to view your credit history is gaining some traction. Says one expert, "If you're applying for a position where you would handle money, make over a certain amount of income or have to pass a security clearance -- these are times when you might consider paying a time-barred debt."

And finally, if you're settling down with one telephone number for a while, be advised that collector agencies can still callyou about a debt that is beyond the statute of limitations, using the argument that your moral obligation to pay has not expired just because your legal obligation has. So long as the calls are not harassing or otherwise run afoul of the Fair Debt Collection Practices Act, they're allowed to call.

For some reason, paying off old debt can still cause you financial troubles; for instances, if you're paying to improve your credit profile, be aware that settling the debt for less than the full amount will be recorded differently on your credit report than payment in full. And after you've paid the old debt, check your credit report (about 30 to 45 days later), to see that the positive change is reflected. And, you have options; you can bargain down the amount of an old debt—debt collectors buy debt for pennies on the dollar, and are desperate to get whatever they can. If the debt is beyond the statute of limitations, you have a strong bargaining position to push for a good discount.

If a collection agency has harassed you, you may be entitled to money damages up to $1,000.00, based on the FDCPA, which has been around for almost 35 years. The FDCPA is a federal law that applies to every state. In other words, everyone is protected by the FDCPA. The FDCPA is essentially a laundry list of what debt collectors can and cannot do while collecting a debt, as well as things debt collectors must do while collecting a debt. Plus, the FDCPA has a fee-shift provision. This means, the collection agency pays your attorney’s fees and costs. Founding attorney, Michael Agruss, has settled over 1,500 debt collection harassment cases. We want to help you, too.