Debt Comes Out of Retirement
Everybody makes mistakes. Old delinquent debts can cause a conundrum. If you have previously defaulted on a debt, you have to decide how you want to handle that default. If you now have the means to pay back a debt you never repaid, you might feel better if you do so, and that's a decision you make based on your personal beliefs and your current situation.
Collectors Come Calling
You might get some help bringing the issue up on your list of things to do. Debt-collection companies often buy defaulted debt, and attempt to collect the money due from the original borrower. Many of these debtcollection companies are reputable businesses. They run a legitimate operation, are well aware of the laws that regulate their industry, and they follow all of the laws.
However, there are also a few bad apples out there. The bad ones get all of the press, and there is a good reason for that: they take advantage of people's fears and lack of knowledge. What's worse, they knowingly break all of the laws designed to protect regular consumers.
If You Choose to Pay
There may be cases where you made mistakes in your youth, but now you are in a position to actually pay off the debts. This is an admirable position to take. When you do pay, make sure that paying the debt will not damage your credit.
Most people would agree that paying off old debts is the right thing to do. Nevertheless, you have to be very careful about how you do it because of some unintended consequences. Even though you repay a debt and prove yourself as a better borrower, your credit can suffer.
Before paying anything, get written agreement from the collectors that they will report the debt to be paid in full as agreed, not as settled or charged off. Keep in mind that the bad apples might not actually stick to the agreement, and you might have further legal battles down the road. However, if you're dealing with a reputable collector, this may be an acceptable strategy.
If You Will Not Pay
If you cannot or will not pay a debt, make sure you are extremely careful about what you say and do. The first step is to know who you are dealing with, and get the facts on your debt. In general, you should say very little on the phone, and request that all inquiries and communication be done in writing.
By knowing the facts and knowing your rights, you can figure out who you are dealing with. Find out from a reputable source what the laws are surrounding your debt. A good place to start is a local consumer-law attorney. If the debt is old enough to be outside of the statute of limitations, note how the collectors act: if they demand payment and threaten to sue, you're dealing with a dishonest firm. Remember, no matter how old the debt is, they can always ask for the money. However, they can't necessarily bring cases against you.
What's the Danger?
How could old debts, whether you are going to pay them or not, do additional damage to your credit? After all, the damage is done when you default on the debt for the first time. Your delinquency is added to your credit files, and for years to come you get lower credit scores and higher loan interest rates because of the default.
The danger is that certain actions can make bad debts look more recent than they should. Recent activity on your credit report is much more important than old activity. Having one missed payment this month is more significant than having one missed payment five years ago. Likewise, inquiries made this month are more significant than inquiries made last year.
Remember that paying off collection accounts does not remove them from your credit history and your credit reports. These accounts will appear for seven years, although having paid them off is better than the alternative. Best case: see if the collectors are willing to remove the entry altogether, or have it under the original lender's name.
In a worst-case scenario, you could bring back old debts that have already fallen off your credit reports. If a delinquency is more than seven years old, it's probably off your credit report, so it doesn't affect your credit scores and nobody can see the item. However, if you pick at old wounds, the debt can reappear on your reports. In some cases, simply acknowledging the debt with a collector or making a payment could bring it out of retirement. If you have suffered through seven years of poor credit scores and watched with relief as the item fell off your reports, it can really hurt to have the issue resurface.
