February 21, 2009

The best way to put it is you owe the old debts until they are paid or wiped out by bankruptcy.  Having these debts is going to make it extremely difficult to get a mortgage.

Consumers sometimes believe that if the debt is unpaid and it is older than seven years it will be off your credit report.  The truth is these debt will go to collections and will not be removed.  So the late payments will not show, but the collections will stay.

Considerations When Paying Old Debts

It could or couldn’t hurt your credit score.  This is because of the different scoring models used.  Paying these old debt will make the certain formulas think this debt is new.  Other formulas specifically the newer FICO formulas realized that you are paying old debts and it will not effect your credit score.

The Statue of Limitations

Every state has a different length of time to which a creditor can sue you over a debt.  If you do pay these old debts this can extend the exposure.  It is also an admission that you do owe this money and the account could take you to court over it.

Who You Pay

Often the company that you now owe the money to will not be the original creditor.  This is because debts are often sold for collection agencies and this means you will have to deal with them.

What You Owe

Since individuals are more than likely dealing with a collection agency, they sometimes do not feel the same way about paying them compared to the original account.  For individuals who look to pay off these debts, they often can negotiate with the creditors to what they will pay.  Though some people state it is a moral obligation to pay what you owe.

Other Considerations

Collection Agencies

The companies in this field can be difficult to deal with.  That actually might be an understatement.  Consumers frequently have complaints about dealing with them.  Some best practices is:

• You should try to deal with the original creditor if possible
• If you are dealing with a collection agency you need to plan your attack.  You should try to exchange a lump sum payment for the account being deleted.
• Get everything in writing.  This is a must if you are going to protect yourself.

Try to have the account reported as “paid as agreed”

Paying the old account could have the account state it was settled on your credit report.  This will carry a large negative effect on your credit score.  You should try to negotiate it to read “paid as agreed.”  Even better would be to work the agreement with the account to have it stop being reported.

Conclusion

Be careful if you are deciding to pay old debts.  The last thing you want is to land in court.  Sometime consulting a lawyer is a good idea.