Millions of Americans are stuck with poor credit and all of the hardships that it brings. When you are ready to rebuild your financial standing, you may be wondering how best to deal with the debts that have gone into collections. This guide can help you decide whether you should try to pay those old debts or start anew.
Determine How Long You Have Had the Debt
The first thing you should consider is how long the debt has been in collections. Most people don’t realize that a statute of limitations applies to debts and to how long a creditor has to sue for repayment. While every state differs on the time provided, the range is three to 15 years. Additionally, the statute of limitations varies based on the type of debt you have in collections.
Typically, an oral agreement remains active for the least number of years, while written agreements and promissory notes remain active for longer. The statute of limitations on open-ended accounts, such as credit card accounts, is variable and may not be the same as the time limits placed on written agreements, including cellphone contracts.
How Will Your Credit Score Be Affected?
If your only concern is to improve your credit score, paying off old debts may be a waste of your resources. While paying an old debt will remove the debt from your credit report, it is unlikely that it will positively impact your credit score. If it does boost your score, it won’t be by much.
The primary advantage in terms of credit is that there will be fewer negative accounts on your report, and a future lender may take that into account when deciding whether to loan to you.
However, if you have taken the time to rebuild your credit score, having an old debt on your report might not carry the same weight. In that case, you will still be able to benefit from your improved score.
Are Collections Agencies Bothering You?
If a collections agency is bothering you, paying off the debt can take care of the problem. Many people feel additional stress when bill collectors call them every day so, if that’s something that causes you extreme anxiety, paying the debt can help you live a more stress-free life.
According to Sue The Collector, a law firm specialized in protecting consumers against debt collection agencies’ unlawful practices, if a debt collector is engaging in illegal collection activities, you can sue them and get compensation. This includes calling you at unusual hours, calling your employer, or calling you directly if they know you have hired an attorney.
Do You Need Them?
Finally, you should consider whether you do business with that same company in the future. For example, if your old debt is the result of nonpayment to the only internet provider in your area, repaying your debt will allow you to use that service in the future.
You’ll likely have to submit a deposit when you do subscribe to their service again, but failing to repay an old debt will prevent you from using their services at all. If there are other choices available to you, it may not be necessary to repay that debt in a hurry. You can wait until you’re in a better financial position to settle that debt.
To Wrap It Up
Ultimately, the decision of how to handle old debts will be up to you. Even if it doesn’t do much to improve your credit report, paying off those debts can give you peace of mind. In the end, that may be just as valuable to you as building a better credit profile is for your future financial standing.