The Pros and Cons of Paying Off Old Debt

At first, the idea of not paying off your credit card debt can seem strange. Isn’t paying them off a good thing? There’s never a good reason to leave them unpaid, right? 

However, this line of thinking may only be a good idea for current or very recent debts. In fact, there are several reasons many consumers choose to avoid making payments towards old, outstanding debts. 

Of course, every debt has a different story. In certain situations, the question of whether or not to pay off debt becomes complicated. Read more about the pros and cons of paying off old credit card debt below. 

Cons to paying off old credit card debt

Let’s take a look at some of the reasons you might want to hold off on paying off older debt.

“Resetting the Clock”

The statute of limitations on a debt is the time creditors or collection agencies can legally sue you for payments on a debt. These time frames vary by state, ranging from 3 to 10 years and beginning on the date of the last activity on your account. This includes: 

  • Making payments
  • Entering a payment or settlement plan
  • Acknowledging that the debt is yours 
  • Using the account

Once you’re active on your account, the statute of limitations restarts. If your debt is at or near the statute of limitation mark, you may be better off if you leave it alone. 

Learn More: Guide to the Statute of Limitations on Debt

Getting Your Debt Charged-Off

Once a debt is charged-off (meaning the creditor has written off your debt as a loss and disallowed further use of the account), it stays this way on your credit report regardless of whether or not you pay the debt. 

If you decide to pay it, the debt will merely be reflected on your report as a ‘paid charge off.’ While it does look better to lenders manually looking through your credit report, it’s unlikely to improve your credit score.

Learn more: What Does Charged off as Bad Debt Mean?

“Paying” for Credit Mistakes Twice

A credit reporting limit is the amount of time debt will remain on your credit report. For most debts, this limit is seven years. 

If you’ve carried delinquent debt on your credit file for seven years, you’ve already faced the negative consequence of having your credit score severely damaged. This means that if you pay it once that reporting limit is up, you’ll be paying for your mistake twice.

Learn more: Do You Understand What a Credit Limit Is?

Pros of Paying Off Old Credit Card Debt

Deciding whether or not to pay off old debts has everything to do with your personal situation and what your credit needs might be in the near future. Let’s discuss some of the reasons that paying off older debt might be the better option. 

Stopping Debt Collectors

While the statute of limitations does prevent debt collectors from suing you over debts, you are still responsible for repaying them. This means that collectors have every right to continue to contact your for repayments – and they will. 

Paying off a debt will stop the onslaught of phone calls, letters, and emails from debt collectors. It will restore your peace of mind, and prevent you from falling for debt collectors baseless threats. 

If you’re suffering from keeping debt collectors away, we can help. Reach out to our debt coaches to find out what debt solution will help keep collectors from calling. 

Looking Beyond the Credit Score

While it might seem like your credit score is the key factor in being approved or rejected for a line of credit, this is not always the case. In some situations, lenders will manually look through your credit to see if you’ve resolved old unpaid debts. 

While paying an old, charged-off debt might not improve your credit score, it could improve your chances of getting a loan from these types of lenders. 

The Chance to Improve Credit

If your debt is not near its statute of limitation or credit reporting deadline, your unpaid debts may be causing harm to your credit score. As your payment history makes up 35% of your FICO credit score, making payments towards your debts may be just what you need to give your score a boost. 

Related Article: Quick Ways to Improve Your Credit Score

Removing a Charged-Off Debt That’s Been Repaid

Of course, paying a debt after it’s been charged-off will not help your credit score. Instead, you will receive a notation on your credit report indicating that you’ve paid the debt. 

However, there are a few different ways you can try to get the charge off removed from your report:

  1. If you have a charge off on your credit report, it’s likely been sold to a third-party collections agency. If your debt is still unpaid, consider debt negotiation. This process involves calling your debt collectors and negotiating the removal of the charge off from your credit report in exchange for all or partial payment of the debt.
  2. Similar to getting out of a traffic ticket on a technicality, you can pull your credit reports and look for inaccuracies on the negative entry. This could include a misspelling, incorrect date, or incorrect account number or balance. If you come across any information at all that isn’t correct, write a letter to each of the three credit bureaus explaining that there’s inaccurate information that must either be removed or corrected.
  3. If you’d rather let a professional handle the process, there are credit repair specialists within the law field. These experts will explore every avenue possible to get these negative entries removed from your credit report.

Are You Struggling With Debt?

People often feel that paying off their old debts is the right thing to do, regardless of whether or not it will really help them in any capacity or improve their credit score.

Regardless of how old your debt is, it is still a problem. If you’re having issues with debt, our coaches can help you find answers to your questions and create an actionable plan to deal with them. Call us today or get started online for a free, confidential session. To learn more, read about our services

Get Started. It’s Free.

Speak to our certified Debt Coaches to review all of your options and discuss best strategies for getting out of debt.Speak to our certified Debt Coaches to review all of your options and discuss best strategies for getting out of debt.
Melinda Opperman

About The Author

Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over 19 years experience in the industry.