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Scenario - Credit Card bill has not been paid for about a year. (A small amount, about $1700.00)

There's a debate in the family.

One side says pay it all off now (money was received from the sale of a house) and there is a fair bit of money left over.

The other side says let it slide - it will drop off your credit score in a few years, and since you're not planning to buy anything it doesn't matter.

My understanding is that

  1. this stays on your score for 7 years - thus impacting credit for at least 6 more years. (Not sure when the CC company considered the debt in default.)
  2. If, for any reason, one needs new credit in the next few years it will be difficult and expensive to get.

Any other reasons to recommend paying off this debt now? All other debts are reasonable and being paid on time. This card (a new one at the time) fell through the cracks during a separation. The people saying to not pay the card point to all these other cards and bills being paid promptly as "proof" that she is a good credit risk.

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    it's always a better idea to pay off debt as soon as possible. No good comes from keeping it. – depperm Apr 24 '18 at 13:05
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    "Any other reasons to recommend paying off this debt now?" How about a moral one - you borrowed the money and spent it - so you owe the money that you borrowed. The other reasons are good, too , but borrowing something with the intent to not repay is theft. – D Stanley Apr 24 '18 at 14:04
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    Definition of theft 1 a : the act of stealing; specifically : the felonious taking and removing of personal property with intent to deprive the rightful owner of it. But sure, I'll go with fraud as well. – D Stanley Apr 24 '18 at 14:08
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    @Mayo if that's their attitude then I would stop arguing with them. Just pay it off when you can, or try to negotiate it down. – D Stanley Apr 24 '18 at 14:12
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    Chances are your sister-in-law will be sued well before the seven years is up. They'll lose, so they'll be out the legal fees and the $1700 and any additional interest that accrues between now and then. The court will garnish wages or seize bank accounts to fulfill the judgement. – ceejayoz Apr 24 '18 at 16:06
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The primary issue is not so much the effect on the credit report of the default but the possibility of losing a lawsuit and then having an adverse judgment including interest and legal fees. A judgment can be enforced by having wages garnished and assets seized.

Perhaps a good third option is to try to negotiate a pay off amount with the credit card company. One of the things you can negotiate is how the settlement is reported to credit reporting agencies. The debt collector probably doesn't know that you suddenly have a bunch of money, so trying to negotiate monthly payments (even if you don't need them) may be to your advantage to convince them you're offering the maximum you can manage.

It may help to feign fear of having your credit ruined as that will help convince them that they you're willing to pay the most you can afford. You can also feign guilt and embarrassment, again to help convince them that you really are offering the maximum you can afford.

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    This is the REAL issue that OP needs to stress. They risk being sued and forced to pay the debt, plus attorney fees and interest. – Norm Apr 24 '18 at 21:37
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Any other reasons to recommend paying off this debt now?

The debt is owed. This "it falls off your credit report" is, not a myth, but horribly misguided. The debt doesn't go away, there are legal statutes that force certain things. So, there are rules about what can be included in creditworthiness determination, there are rules related to debt collection efforts. Just because there's a rule that says something like "the adverse record can only be included in creditworthiness determinations for 7 years" that doesn't mean, then you don't owe the money anymore. Additionally, just because there's a rule that says "you can't attempt collection from a non-responsive party after the last acknowledgement of the debt is over 10 years ago" doesn't mean you don't owe the money anymore. There's no rule that says, after X time you don't owe the money anymore.

The issue is, you can let this this debt sit. You can try to not ever accidentally acknowledge it again. Maybe it won't be held against you forever. But it's actually quite difficult to get a debt all the way to zombie status without ever accidentally acknowledging it, resetting the timer.

What's more likely is someone attached to collecting this debt will ding your credit score/report and notice you have good credit in the face of this wildly delinquent debt. Your creditor will then likely sue you, because they know you can pay because you're paying everyone else. They'll get a judgement against you which will result in a negative blemish on your credit (in addition to various fees).

If I were you, I'd just get a payoff quote and pay it off. Alternatively, you should call and negotiate a settlement. The issue with a settlement is it results in a negative-ish blemish on your credit report that will stick around for 7 years.

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  • "acknowledging" a debt does not reset the timer with regards to your credit reports - that is established by the Date of First Default, which cannot be legally changed. However "making a promise to pay" and then failing to do so can reset the statute of limitations for which they can be sued for the debt - however that is controlled by state law and varies quite a bit. At least 12 states require a written and signed repayment agreement to reset the SOL. – Norm Apr 24 '18 at 21:35
  • The whole point is it's substantially more complex than "sit around and wait for 7 years then you're in the clear." And it doesn't even matter because I'm certain this creditor in this situation will sue well before anything gets anywhere near 7 years old (paragraph 3). And again, these are rules surrounding the reporting and collection of debt, and have nothing to do with whether or not you owe the debt, you do still owe the debt until it's settled, there's just some legalities that can converge making debt effectively discharged. – quid Apr 24 '18 at 21:43

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