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9 debt myths about debt

Michael Rapp Dec. 23, 2013

MSN got some help from the folks at NACA in writing this. (Thanks to Ira Rheingold and Chi Chi Wu!) Somehow though, it still seems to miss the mark. Their explanations on several are spot on, a few they muddy the water a bit. Here are answers you can take to the bank:

Myth No. 1: Paying old debt always raises your credit score

If you just mail in a check? Almost never. Simply put, if it is old, get a written agreement that it will show on your credit report as “paid in full.” Anything less will still be a negative remark and hurt your scores.

Verdict: MYTH.

Myth No. 2: Paying an obligation ‘restarts’ the clock on your debt

YES! This comes down to definitions, ‘debts that you can be sued on’ or ‘debts that appear on a credit report.’ Paying even one penny on an old debt restarts the statutes of limitations. That means a debt collector that convinces you to pay a dollar on a time barred debt, they can run right out and sue you.

Myth No. 3: Once the statute of limitations on forced collection passes, creditors can’t sue

It is against the rules (FDCPA), but that doesn’t mean they won’t try! If a creditor or collector sues, and you don’t have someone in court to contest the claim, you will likely lose and they will win, even if it is past the statute of limitations.

However, if a collector sues you and you demonstrate that the statute of limitations has expired, they may owe you money!

Verdict: TRUTH.

Myth No. 4: Making a small or partial payment stops lawsuits and debt collection attempts

Unless you have a signed payment plan, it will do just the opposite. Never agree to anything with a debt collector unless you get it in writing!

Verdict: MYTH.

Myth No. 5: Paying old debt removes it from your credit report

What is on your credit report is on your credit report, unless you challenge it. Unless they agree to remove it for payment, the collector will likely repot it as “paid as agreed,” which is still a negative mark on your credit!

However, after seven years from the default on the original debt, it shouldn’t still be on your report, whether you pay it or not.

Verdict: MYTH.