12/11/2013 5:15 PM ET|
The truth behind 9 debt myths
Dealing with debt is tricky enough without erroneous information and wrong-headed advice. Here are some debt myths in need of some serious debunking.
That free advice you get from friends, co-workers or the "charming" bill collector on the phone could be worth even less that what you paid for it.
From the perils of acknowledging old debts to the odds of "inheriting" financial obligations, here are nine myths that need to be permanently busted, along with a few things it pays to know about debts:
Myth No. 1: Paying old debt always raises your credit score
Not always. This much is true: If a debt is seven years old or younger, and it's on your credit report, paying it could improve your credit score, says Anthony Sprauve, spokesman for myFICO, a division of FICO. How much depends on how old the debt is.
The myth part comes in if a debt is too old, or isn't on your credit report.
If a debt is older than seven years, by law it should have already come off your crdit report. So repaying it won't raise your score because it's no longer considered, says Sprauve.
In fact, if the debt is younger than seven years old and for some reason is not on your report, paying it could potentially lower your score, Sprauve says. The reason: If the collector reports the payment to credit bureaus, suddenly that old debt will be added to your report. Even though the debt is now paid, it's a negative mark your report didn't previously have.
When it comes to debt, time really is on your side. New debts affect your score more than old ones, says Laura Udis, senior financial services advocate at the Consumer Federation of America.
Myth No. 2: Paying an obligation 'restarts' the clock on your debt
Half right. There are two clocks to consider. One is the length of time in which a creditor can force payment on a debt. The second is the length of time a debt can stay on your credit reports.
- Forced-collection clock: Under state statutes of limitations for debts, creditors can use the courts system only so long to sue you for debt, get a judgment and garnish wages. But watch out: A consumer can unwittingly restart the collections clock on old debt, says Gail Hillebrand, associate director for consumer education and engagement at the Consumer Financial Protection Bureau. Acknowledging a debt (verbally or in writing), making a partial payment or accepting a payment plan can all risk "re-aging" the debt, restarting that clock.
- Credit history clock: No matter who owns the debt, how many times it has been sold or whether you acknowledge it, it has to come off of your credit history after seven years, says Chi Chi Wu, staff attorney at the National Consumer Law Center.
And it's illegal to tag an old debt with a new "birthday," she says.
This seven-year clock starts 180 days after the last payment the consumer made on the accounts.
One notable exception to the seven-year reporting rule: collection judgments. A judgment is considered a separate item from the original debt, Wu explains.
Myth No. 3: Once the statute of limitations on forced collection passes, creditors can't sue
Not entirely. You have no legal obligation to pay a debt that's passed the state statute for forced collection, says Ira Rheingold, executive director of the National Association of Consumer Advocates. But creditors or collectors can still file a lawsuit.
If a creditor or collector sues, and you don't have someone in court to contest the claim, the courts may assume it's valid and grant the judgment, Rheingold says. Then, just like a B-movie zombie, that once-expired debt is alive and kicking again.
So if a collector sues, you or your attorney need to show up in court and demonstrate that the statute of limitations has expired, he says. Merely sending a letter to the courts or the creditor often isn't enough to prevent a default judgment, he adds.
Short on funds? You can contact NACA.net to find a consumer attorney who will take the case for a reduced fee, Rheingold says.
Myth No. 4: Making a small or partial payment stops lawsuits and debt collection attempts
Not true, unless that's part of a payment arrangement you have in writing, says Udis.
When dealing with representatives for creditors or collectors, get any promises or payment arrangements in writing or record those calls, if that's legal in the consumer's state, she says.
Myth No. 5: Paying old debt removes it from your credit report
Nope. If an old debt is on your report and you pay it, that doesn't mean it will stop appearing on your credit history, says Udis.
What's most likely: It will still be reported, along with a status of paid or settled, she says.
And if the original debt is more than seven years old, it shouldn't still be on your report, which means it won't be included in your credit score, whether you pay it or not.
More from CreditCards.com:
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When/If collectors call, tell them you don't accept "collection" calls at that number, and hang up.
The best advice given in the article is if you do communicate with a creditor/collection agency, do it in writing - and, be careful of your terminology. It can be tough to deal with resolving a bad situation and get hung up in semantics. "You said this." "Yes, but I meant this." Creditors/collectors like to use "immediacy" as a weapon against you. There are time frames in which to respond to a demand/deal/settlement/offer/court summons/etc. By all means, if you intend to attempt to resolve a matter, act in "good faith". However, DO NOT agree to anything unless you have a surety you can deliver and they will honor their end of the deal.
Myth No. 10: The debt collection agencies give a hoot about collection or harassment laws.
Priceless advice given to wise lil' boys and girls by men and women who survived to thrive after the Great Depression: Cash is king and debt is for only fools and the unfortunate.
(That the banksters and the marketplace tell you otherwise points up just how true it is.)
Why is there all sorts of "protection" for people who can't live within their means?
All these people tell you the way it is and if I wanted a expert to contact and talk about my $63.00 collections from Tmobile that popped on my credit, note my bill is paid in full every month with a zero balance, but somehow I started to get notice in the mail from some shady collections company in Florida, I asked someone I know who owns a repo company and she said they are shady, and tmobile said yes I owe them $63.00. So I ask why when you know my address and I get my tmobile bill every month in the mail. They said Oh, maybe you moved and it went to the old address. I said are you guys kidding me?, I changed my address the day I moved, and tmobile sends me the bill every month To my new address.
I want to just pay it because my credit score dropped 105 points from this collections. BUT<BUT, I want a credit expert who is talked about in this article make sure for me I do it right to remove it. I was 702 and now I find out the collections is on one of the 3 credit scores 2 times for $63.00 and the same one for $62.00. WTF??
I am going to get back into the housing market 2014. However the following Credit Report's have given me a credit score of 650, 635,630. They have reported old credit record of things that are 10 yrs, 15 yrs & 17 yrs, old. I want to write them to ask them to make corrections on my credit score / reports. Is there a template that I can write from to get them to correct those's 10 yrs,15yrs, 17 yrs,report up date or remove. Are they under the US Consumer Financial Protection Bureau or FICO / Consumer Financial Protection Burea.
Just want a good floor mat to follow to write to correct there over 10 years past credit history statement / reports.
My (actually half) brother had a car dealership try that inherited debt once. His father died (same mother), and his father had a car loan... So my brother drove the car back to the dealership, turned over the keys, and they tried to tell him that since his father died, the debt was now his, and he'd have to pay.
My brother told them this wasn't the case, and they went to argue. He then pulled out his badge (he was a cop, in the city), and informed them of the law, and that as an officer he knows the law quite well. They're not going to pull one over on a cop who's job is law enforcement, and told the dealer to have a nice day....
There is one itsy bitsy little matter for people to consider though, if they do have an old debt. It might not be on your credit report, it might not count against you. But if it's a company you WANT to do business with again, you might just want to pay it off. Statute of limitations and all, what it was, if you owed them money and didn't pay; they might just NOT WANT to do any further business with you, simply because you would have cost them money. You might not be legally obligated to pay, but then again, they aren't legally obligated to accept you as a customer again.
It would be a consideration for anyone, who might find themselves in that situation ;) Just a word to the wise there :)
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