Why Pay Collections Off?

by Sara

Why would you pay off an old debt if it is about to be removed from your credit reports?

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Jan 03, 2010
Paying off old debts
by: Gerri

If you are just looking at the issue of your credit reports, then paying off the collection account will not affect it one way or another. The credit scoring system does not give you "credit," so to speak, for having paid a collection account.

From a practical point of view, if the account is outside the statute of limitations (a.k.a. a "time-barred debt") then paying it could revive the statute of limitations. If you cannot afford to pay it in full or if you can't reach a settlement agreement that works, then starting the clock ticking again by making partial payments could be a problem. You'll want to make sure you first check your state statute of limitations before you start paying.

Finally, though, there is the ethical issue here. Lenders extend credit on the promise of being repaid. If everyone stops repaying, then that promise becomes hollow, lending dries up, and we already know what kinds of problems that can create.

If you do your homework and for some reason it is not possible for you to pay back the debt, I would encourage you to find another way to make good on it, for example, by donating time or money to a good cause or by helping someone else out. I like to think of it as "good debt karma."

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