by Jeff Sovern
Consumers have no legal obligation to pay time-barred debts and suing on such a debt or threatening to sue on one violates the FDCPA. But are consumers ever better off, aside from feeling better for meeting their obligations, by paying such debts? When a statute of limitations is less than seven years, as is often the case for consumer debts, creditors are able to report a debt as unpaid after the statute of limitations has past. My impression (which may be wrong) is that the older the debt, the less impact it has on the credit score, so conceivably a debt older than a statute of limitations does not affect a credit score, but I suspect they often do. If a consumer pays the debt, would the consumer's credit score improve? Or does paying such an old debt have no impact on credit scores or access to credit? If you know, please answer in the comments.
0 thoughts on “Something I’m Wondering About: Are Consumers Ever Better Off by Paying Time-Barred Debts?”
What consumers need to know about “Junk Debt Buyers” before even considering paying a possible extortionist. Generally these types of “Time-Barred” debts are uncollectable due to there origins. Uncollectable debts are purchased for little, if not nothing….worthless paper. The illegal debt collection industry uses consumer credit scores to threaten consumers to extort money for debts not owed. Let’s be real, if the state laws do not allow collections on “Time-Barred” debts, then debt collectors should be prohibited from collections.
The answer above is from someone who works in the collection industry attempting to justify abuse of consumers and illegal collections.
The old debt is less important than still being in the game and having new and current good unsecured credit being reported.
The times these days when I see people ridding the old debt is primarily with unaffordable private student loans. More people are letting those ride absent any meaningful help from the private lender. In that case it is less of a casual strategy and more part of a bigger solution and the old debt isn’t critical unless in the 2-3 year window they need to do something for a refi as Michael mentioned.
My experiences suggest that most people looking at the benefit of resolving time barred debt are doing so (if they are well informed) in order to get a home loan or refinance approved. And here, the credit score is not the issue, as much as an unresolved collection is preventing loan approval.
There are some limited instances where I see someone credit score sensitive get a bump from resolving out of stat accounts. There are also some instances where I see the credit score take a slight dip from resolving an old debt.