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Credit Repair

The Pros And Cons Of Paying An Old Debt

Have you ever applied for a loan only to be told that there is an old debt out there that you need to pay off before it can be approved? Frequently, it is a medical bill that went to collection and you simply forgot about it in the rush of life and daily bill paying. Here are a few of the pros and cons of paying that old debt.

Your first reaction will most likely be to pay the debt, even if it is close to or past your state’s statue of limitations for collection. Consider this. Even if you pay the bill in full, it stays as a negative action on your credit report for at least seven and a half years from the time it first went to collection. Yes, it looks better that it is paid, but your score will barely change.

Depending on the amount due, arranging a repayment schedule may stretch your budget to the breaking point. That could be a formula for getting behind on other bills, triggering additional collection actions. By the way, once you make payment arrangements, the statue of limitations in many states will reset, making it possible for the debt collector to get a judgment against you.

Paying off an old debt usually makes sense. Lenders prefer that there have never been any collection actions on your credit report, but paid off debts are better than outstanding ones. In the long run, it is usually best to pay all old debts if you can make the payments without falling behind in other areas.

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