We hear people ask all the time: How old does debt need to be before it is forgiven? Should I pay off a 3, 6, or 7+-year-old balance or forget about it? Are there repercussions? Will it hurt my credit, even if the debt is from so long ago?
In August 2021, over 60 million people with a credit record (about 28% of Americans) had debt in collections on their credit report. Many of them are struggling with unpaid expenses, especially with inflation rearing its ugly head. Is it any wonder people are asking if they should ignore it to try and make it go away?
There are quite a few factors to consider before paying off that old debt. First, let’s explore the legal statute of limitations and see how it affects your responsibility to pay.
The statute of limitations
Under the statute of limitations, you may have a defense if you are sued, and the debt is too old. Most statutes of limitations fall in the three-to-six-year range, although in some jurisdictions they may extend for longer depending on the type of debt.
A statute of limitation may vary depending on the:
- Type of debt
- State where you live
- State named in your credit agreement
If a debt collector sues over a debt that has gone unpaid for longer than the statute of limitations period, you may want to consult an attorney. It is a violation of the Fair Debt Collection Practice Act for a debt collector to sue you or threaten to sue you if they know the statute of limitations has passed.
The best way is to pay
Most people would probably agree that paying off the old debt is the honorable and ethical thing to do. Plus, a past-due debt could come back to bite you even if the statute of limitations runs out and you no longer technically owe the bill.
While the debt could fall off your credit report, don’t plan on ever borrowing from that creditor again. Creditors could be hesitant to lend to a borrower that did not pay back the loan.
Defaulting on a loan
We don’t readily think of our debts as loans. But technically, that is what they are. The money that credit cards provide for you to make a purchase is technically a loan. So, too, are medical bills and personal lines of credit. How you treat all of these creditors will have a serious impact – either negatively or positively – on your credit score.
The importance of your credit score
If you are unfamiliar with a credit score, it is a three-digit number that can vary from 300 to 850. The higher your score, the easier it will be for you to get credit. Conversely, the lower the score, the more difficult it will be for you to take out a new credit card, mortgage, auto loan, or any other form of credit. This is because your lender first looks at your credit score whenever you apply for a loan. In many cases, a lender won’t look at anything but your credit score.
Numbers don’t lie
A credit score of 720 and above will generally get you approved for the credit you have applied for with the lowest interest rates. But a score in the low 600 makes it more challenging for you to get approved for any credit. If you do, it will come with a very high interest rate. Potential lenders will see you as having a poor credit risk and will charge more to offset that risk.
How your credit score is calculated
A company whose name used to be Fair Isaac Corporation but is now known simply as FICO developed the idea of credit scoring. It is based on a formula or algorithm that translates your credit report into a three-digit number. Most, if not all, credit providers rely on the FICO score. It is important that you keep this number as high as possible. You can find your credit score online for free on many sites, including myFICO.com and Experian.com.
To pay or not to pay old debt?
Creditors check your credit score to see if you are a good candidate to pay back your loan. If you have unresolved debt, the chances of you getting approved are slim. It would be in your best interest to pay it off as quickly as possible. In addition, paying off your old debt could stop calls and letters from pesky creditors.
Help is available
If you have the means to cover an old debt, the right thing to do is pay it off. If you are struggling with debt in general, National Debt Relief can help you pay it off for less than you owe in a shorter amount of time. That way, your debt can be gone before it becomes old.