Many Florida residents have old debts that were not disputed properly or were simply left unpaid due to lack of financial means. Paying these old debts off does provide some benefits, but it’s not something that should be done without careful consideration, according to an American Financial Solutions director. Understanding the benefits begins with a basic knowledge of the laws surrounding debt collections.
Delinquent payments continue to negatively affect the credit report for seven years in all states but New York, and they may be the basis for legal action for six years or less depending on the state. A creditor or collection may continue providing reminders of the debt for as long as it exists. Actions to collect debt are limited by the Fair Debt Collections Practices Act.
The primary reason for paying old debt is to remove it from the credit report. This will affect credits scores eventually, but the primary effect is the favorable view it will cast for lenders. This is particularly important when applying for a “loan that is rate sensitive,” according to the Experian vice president of public education. It can also be useful to pay prior to applying for jobs in the retail, finance or public sector. Any payments to collections agents should be documented thoroughly and followed up by checking the status of the debt via a credit report.
Old debts may be forgotten, but their effects can remain for years. In some cases, it makes sense to take care of past obligations when the opportunity arises. In the event of creditor harassment or inability to meet mortgage payments, however, the borrower may find needed assistance with an experienced attorney.
Source: Fox Business, “When to Pay Off Old Debt,” Jenny Mangelsdorf and Fred O. Williams, April 3, 2013