Receiving a phone call from a debt collector regarding an unpaid bill that one had long forgotten is inconvenicing. You may be asking yourself whether you really need to pay an old debt of 5 years or more, given the fact that the creditors do not bother to call or write to you anymore. Here is what you should know about paying – or not paying – older collections.
The next question that arises is what happens to debts after 5 years?
Usually, creditors and debt collectors have about 3-6 years to sue you in court to recover the money you owe. Once the period of limitation has been elapsed, they cannot go to court against you to claim the amount you owe them. However, that does not remove the debt completely and it remains with the individuals involved.
You still are legally indebted to the amount – it is just that the collector or the original creditor cannot necessarily compel you to pay through any legal channels. They can still try to collect by writing to you and asking you to pay back the money. They also can usually still report the debt to the credit bureaus for up to 7 years from the date you first missed payments hurting your score.
Even with no legal means to force collection, an unpaid 5 year old debt can:Even with no legal means to force collection, an unpaid 5 year old debt can:
- Sacrifice your credit score for years
- Make it difficult for you to get loans, credit cards, mortgages, and utilities.
- Lead to ongoing collector phone calls to demand for payment
If You Buy for 5 Year Old Collection?
Here are some things to consider when deciding whether or not to pay a debt that is 5 years or older:
Advantage #1: It can help enhance your credit rating.
On the contrary, it is possible to improve the credit score by paying off a collection that is more than 5 years old. Paying less than the full amount also assists in closing the account although not as effective as paying the full amount.
In fact, paying indicates to credit bureaus that you now have the ability to pay the debts and hence, solve earlier problems. However, always ensure that any promises to erase the negative mark or payment plans are written down before making any payments.
Benefit #2: The Collector Finally Leaves You Alone
Buyers often buy very old accounts for a few cents on the dollar just for the sake of trying to collect something. In many cases, if one pays these zombie debts even a little amount, the collectors cease the calls and letters.
If the contact attempts are annoying, then it is advisable to incur the small “nuisance fee.” The important thing is to make sure that the collector writes to you, stating that account will be closed and no further collection action shall be taken once you pay up.
Benefit No. 3: Feeling of emotional or moral relief
Some individuals claim that, owing money may result in an emotional burden in the shape of a monetary albatross that hovers over one’s head for many years. They said that even the token payments make them feel powerful and do something about past misconduct.
Some people feel guilty of owing the money while others can afford to pay something without compromising their financial status and this makes them find it easier to pay something. As long as you do not fall into any repayment traps without first protecting your rights in writing.
Some of the reasons as to why you may not want to pay for 5+ year old debt include the following.
On the other hand, here are some good reasons why you may choose NOT to pay debt collectors on older accounts:On the other hand, here are some good reasons why you may choose NOT to pay debt collectors on older accounts:
The first reason is that you can no longer be sued for the debt.
As a final reminder, it’s crucial to understand that debt collectors have no legal claims to sue you for a debt that is beyond your state’s statute of limitations. Paying anything at all “resets the clock” on your state’s statutes and can give them legal collection access again.
While you may feel ethically bound to settle the debt, you have the law on your side against any legal actions that would be taken from you once you pay past the deadlines. Why relinquish that shield if remaining indifferent to the debt has no legal repercussions for a person?
Reason #2: Tax debt exclusions
If the old collection was from more general living expenses or even medical bills, then the unpaid amount over 3 years old can in fact be tax deduction. Depending on the given circumstances, it may be more beneficial to claim income reductions included in the “Insolvency Exclusion” for US income taxes.
Reason #3: It May Fall Off Your Credit Report Anyway
Negative credit markings are usually erased from the credit reports 7 years after the accounts became delinquent with the original credit grantors. Therefore, it is possible that a collection that was as young as 5 years may cease to influence most of the scores even without being accessed in 2 more years.
Thus, if you do not intend to use your credit score to secure a large purchase loan in the next few months, paying off older debt will prove ineffective, as it may not significantly influence your score to warrant the time and resources spent in resolving the account.
What Should You Do About Old Collections?
Like most financial decisions, it varies depending on your circumstances. Before paying debt collectors, always:Before paying debt collectors, always:
- Always obtain the payment terms for the removal of negative information in writing before anything else
- Remember to learn your state’s statute of limitations to avoid cases being reset
- Ensure that the payment is pocket friendly and will not have a huge impact on the family expenses
Last but not the least, seek professional advice from an attorney, financial planner or a reputable credit counseling agency in view of the overall financial capacity and the life plan. They can assist in finding out whether it is more beneficial to pay the money or simply turn a blind eye to debts that are extremely old.
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