Clear Delinquent Credit Card Debt: Pros & Cons Explained (2024)

When it comes to managing your finances, conventional wisdom advocates paying off credit card debt promptly to enhance your credit score and overall credit history. However, this strategy may not universally apply, especially when dealing with past-due, aged, outstanding credit card balances.

Cons of Paying Off Old Credit Card Debt

Resetting the Clock

The statute of limitations dictates the time within which creditors can legally pursue legal action for missed debt payments. This period varies by state, typically spanning from 3 to 10 years. Remarkably, engaging with your credit accounts, even for the most basic activities like making a credit card payment, acknowledging the debt, or using the credit account, restarts this clock. If your debt is nearing the statute of limitations, leaving it untouched might be a strategic move.

Learn More: Guide to the Statute of Limitations on Debt

Letting Your Debt Charge-Off

Once a debt is charged-off (meaning the creditor has written off your debt as a loss and disallowed further use of the account), it remains on your credit report regardless of subsequent payments. Even if you pay off late fees or other charges, the credit report will label it as a 'paid charge off,' offering minimal benefits regarding credit score improvement. While it does look better to lenders manually looking through your credit report, it’s unlikely to improve your credit score or change your status as a credit risk for most lenders during lending decisions.

Learn more: What Does Charged Off as Bad Debt Mean?

Covering the Cost of Credit Errors Twice

A credit report limit is the amount of time debt will remain on your credit report and reflect on your credit history. For most debts, this limit is seven years. The conventional seven-year limit for debts on credit reports means that if you've endured the negative impact for this duration, paying it off might not yield significant credit score improvements.

Learn more: Do You Understand What a Credit Report Limit Is?

Pros of Paying Off Old Credit Card Debt

Stopping Debt Collectors

While the statute of limitations shields you from legal action, creditors can continue pursuing a repayment. Clearing old debts can halt the persistent calls, letters, and emails from debt collectors, offering you peace of mind and safeguarding you from baseless threats. While the statute of limitations does prevent debt collectors from suing you over debts, you are still responsible for repaying your credit card bills. This means that most creditors have every right to continue contacting you for debt collection, credit card payments, late payment, or to offer a payment plan – and they will.

If you’re suffering from keeping debt collectors away, we can help. Reach out to our debt counselors to find out what debt solutions will help keep collectors from calling. You may be a fit for a debt management plan or other debt relief option.

Looking Beyond the Credit Score

Certain lenders delve deeper into your credit history beyond just the credit score – reviewing your credit utilization rate and available credit. Resolving old unpaid balances might not directly impact your credit score but can enhance your eligibility for loans, provide better loan terms, and result in credit limit increases.

Clear Delinquent Credit Card Debt: Pros & Cons Explained (1)

The Chance to Improve Credit Report

Paying off old debts before they reach the statute of limitations or credit reporting deadline can positively influence your payment history, a significant factor in your FICO score. This move can boost your credit score and contribute to a healthier credit profile. Your payment history makes up 35% of your FICO score; making payments towards your debts may be just what you need to give your good credit score a boost.

Related Article: Quick Ways to Improve Your Credit Score

Removing a Charged-Off Debt That’s Been Repaid

While paying a charged-off debt won't directly boost your credit score, exploring avenues to remove the charge-off from your credit report can be worthwhile. Negotiating with debt collectors, correcting inaccuracies, or seeking professional assistance are viable options.

There are a few different ways you can try to get the charge-off removed from your credit report once you pay the debt:

  1. If you have a charge-off on your credit report, it’s likely been sold to a third-party collection agency. If your debt is still unpaid, consider debt negotiation. This process involves calling your debt collectors and negotiating the removal of the charge-off from your credit report in exchange for all or partial payment of the debt.
  1. Similar to getting out of a traffic ticket on a technicality, you can pull your credit report and look for inaccuracies on the negative entry to the credit bureau. This could include a misspelling, incorrect date, late payment, credit utilization rate, or incorrect account number. If you come across any information that isn’t correct, write a letter to each of the three credit bureaus explaining that there’s inaccurate information that must either be removed or corrected. Reach out to our debt counselors to obtain guidance on what to include in your letter.
  1. If you’d rather let a professional handle the process, there are credit repair specialists within the law field. These experts contact each credit bureau and will explore every avenue possible to get these negative entries removed from your credit report.

Check Your Credit Report Regularly

Maintaining a healthy credit score involves periodic checks of your credit report. Regular reviews can uncover inaccuracies, unauthorized transactions, or other issues, allowing you to take swift corrective actions. You can obtain a free annual credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—by visiting annualcreditreport.com.

Are You Struggling with Debt?

Old debts, regardless of age, can impact your financial standing. Seeking professional advice can help you navigate the complexities of debt management, placing you in a more favorable credit score range. Reach out to our debt counselors today for a free, confidential session to explore tailored solutions for your financial well-being. Our counselors can help you find answers to your questions and create an actionable plan to have your credit score in the higher end of the credit score ranges. To learn more, read about our services.

Article written by

Melinda Opperman

Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

Clear Delinquent Credit Card Debt: Pros & Cons Explained (2024)

FAQs

What is the downside of a debt relief program? ›

Creditors are not legally required to settle for less than you owe. Stopping payments on your bills (as most debt relief companies suggest) will damage your credit score. Debt settlement companies can charge fees. If over $600 is settled, the IRS will view this debt as a taxable income.

Will my credit score go up if I pay off a delinquent account? ›

While paying off your debts often helps improve your credit scores, this isn't always the case. It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. However, that doesn't mean you should ignore what you owe.

Is it best to clear credit card debt? ›

Paying off your credit card in full can save you money in interest and charges. But this is not a good option if you would need to: Take out more credit, or. Make big cutbacks on your monthly spending.

Can you get a delinquency removed from your credit report? ›

Yes, a delinquency can be removed from a credit report, but only by your creditor. While they are not required to remove it upon your request, you can ask.

Is it worth doing a debt relief program? ›

If you're one of the millions of Americans struggling to repay high-interest debt, a debt relief plan may be an option to help you get your finances on track. But it's not a quick fix. It's a long-term solution designed to help you get out of debt over a period of time — typically several years.

What are the dangers of debt forgiveness? ›

Using debt settlement options to reduce debt comes with several risks, including late payments on your credit report, potential charge-offs, settlement company fees, tax implications on forgiven balances, possible scams and the overall risk of settlement offers not working.

How do I rebuild my credit after delinquency? ›

How to Build Back Your Credit Score
  1. Make all of your payments on time going forward. A consistent payment pattern can only help your credit score. ...
  2. Limit spending. ...
  3. Pay down your debt amounts. ...
  4. Get a secured credit card or a credit-builder loan. ...
  5. Become an authorized user. ...
  6. Check your credit report.
Jun 15, 2023

How to pay off delinquent credit card debt? ›

There are a few ways you can try and tackle your seriously delinquent credit card debt, including:
  1. Take advantage of a credit card forgiveness program.
  2. Take a DIY approach to debt settlement.
  3. Enroll in a debt management plan.
  4. Utilize a credit card hardship program.
  5. Pay off what you owe with a debt consolidation loan.
5 days ago

Can credit card company remove delinquency? ›

Unfortunately, an actual late payment is nearly impossible to remove from your credit report even if you were able to convince your card issuer to waive any fees you may have been charged.

What is the 15-3 rule? ›

When you have a credit card, most people usually make one payment each month, when their statement is due. With the 15/3 credit card rule, you instead make two payments. The first payment comes 15 days before the statement's due date, and you make the second payment three days before your credit card due date.

How can I clear my credit card debt legally? ›

Filing for Chapter 7 bankruptcy wipes out unsecured debt such as credit cards, while Chapter 13 bankruptcy lets you restructure debts into a payment plan over 3 to 5 years and may be best if you have assets you want to retain.

Is it a bad idea to settle credit card debt? ›

Debt settlement can eliminate outstanding obligations, but it can negatively impact your credit score. Stronger credit scores may be more significantly impacted by a debt settlement. The best type of debt to settle is a single large obligation that is one to three years past due.

Is it true that after 7 years your credit is clear? ›

Highlights: Most negative information generally stays on credit reports for 7 years. Bankruptcy stays on your Equifax credit report for 7 to 10 years, depending on the bankruptcy type. Closed accounts paid as agreed stay on your Equifax credit report for up to 10 years.

How to erase delinquencies from a credit report? ›

How to remove negative items from your credit report yourself
  1. Get a free copy of your credit report. ...
  2. File a dispute with the credit reporting agency. ...
  3. File a dispute directly with the creditor. ...
  4. Review the claim results. ...
  5. Hire a credit repair service. ...
  6. Send a request for “goodwill deletion” ...
  7. Work with a credit counseling agency.
Mar 19, 2024

Does paying delinquent accounts help score? ›

Resolving old unpaid balances might not directly impact your credit score but can enhance your eligibility for loans, provide better loan terms, and result in credit limit increases.

What are the disadvantages of debt relief order? ›

Disadvantages of Debt Relief Orders

If your circ*mstances change, you may still be required to repay your creditors. Your debt relief order will appear on your credit file for six years. This may affect your ability to get credit in the future.

Does debt forgiveness hurt your credit? ›

Downsides of debt forgiveness

Debt forgiveness may negatively affect credit scores, making it challenging to obtain future loans or credit. Forgiven debt of more than $600 may be considered taxable income, potentially resulting in a hefty tax bill.

How long does debt relief stay on your credit report? ›

Debt Settlement: 30 Days or More

Late payments remain on credit reports for seven years before being removed. Payment history makes up about 35% of your FICO Score. If you're late on payments and that gets reported to the credit bureaus, it can seriously affect your score.

What happens if I drop out of a debt relief program? ›

If you drop out of the program for any reason, you lose all the concessions creditors made for you on interest rate reduction and elimination of penalties for late fees, etc. You will be asked to close all credit card accounts while in the program, although some agencies may allow one card for emergency use.

Top Articles
Latest Posts
Article information

Author: Edmund Hettinger DC

Last Updated:

Views: 6243

Rating: 4.8 / 5 (58 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Edmund Hettinger DC

Birthday: 1994-08-17

Address: 2033 Gerhold Pine, Port Jocelyn, VA 12101-5654

Phone: +8524399971620

Job: Central Manufacturing Supervisor

Hobby: Jogging, Metalworking, Tai chi, Shopping, Puzzles, Rock climbing, Crocheting

Introduction: My name is Edmund Hettinger DC, I am a adventurous, colorful, gifted, determined, precious, open, colorful person who loves writing and wants to share my knowledge and understanding with you.