Better to simply let the debts age of my report.
Your credit is much more than just your score
While it’s true that paying off a debt won’t improve your score, nor will it erase the item from your credit report, two important things do happen:
- The account balance updates to $0
- The account status changes to “PAID” or “SETTELED”
This is very important, because potential creditors look at much more than just your credit score. They actually pull your credit report and scan it for unresolved items such as unpaid collections, liens, charge offs etc. In fact, your credit report is much more significant than your credit score.
It’s very hard to get new credit (impossible for a mortgage) with unresolved derogatory items. For example, while a person with a Fico score of 640 but a clean credit report can qualify for a mortgage, another person with a fico score of 680 but with a single unresolved credit card charge off won’t.
Debts don’t just go away
Unpaid debts don’t just disappear. Charged-off accounts are usually sold to collection agencies.
Collection companies don’t give up easily. Even if you haven’t heard from them for a long time, they tend to sue right before the statute of limitations. In many cases (especially if the debt is yours) they will get a judgment against you.
A judgment will impact your credit severely, and will appear on your report for the next 7.5 years. Unsatisfied judgments can also be extended for an additional 7.5 years endlessly.
Debts accumulate. Exponentially!
Another aspect of debts is that they never stay still. Debts continue to grow with time – they accumulate high interest, late fees and legal fees. In the end you’ll need to pay a huge amount of money that can be un-proportionally larger than the original debt.
You can be forced to pay
If a creditor or a collection company takes you to court, get a judgment against you and you keep ignoring the debt, they can come after any asset that you have to enforce payment. They can put liens on your property, your car, attack your bank accounts and even garnish your wages.
But what if the debt aged off my report?
Many people confuse between the statute of limitations and the credit reporting time limit.
While it is true that most derogatory items age off your credit report 7.5 years from the date of first delinquency (whether paid, settled, or unpaid), that doesn’t mean you no longer owe the debts. It just means it can’t be reported to your credit report.
What determines the time frame for filing a law suit is the statute of Limitations which is governed by state law. While the SOL for most debts is less than 11 years, some states have much longer times. You can use this Complete list of Statute of Limitations by State to check the SOL for your debt type and state.
Side Note: Some debt collectors will continue to attempt to collect even after the statute of limitations has expired. They’re hoping you don’t know about the SOL and you’ll pay up if they threaten you enough. They may even file a lawsuit against you. In the event that they do, you can always use the SOL as an affirmative defense.
Not to mention the moral aspect
If the above doesn’t give you enough reasons as to why pay off debts, consider the moral point of view. It is my firm belief that we cannot exist as a society if everyone keep ignoring their debts. That includes me, and you. Everyone!