How to Pay Off Old Debts

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Pay Off Old Debts.
Pay Off Old Debts. (Image: stock.xchng woodsy)

Many consumers reach a point in their lives where they are unable to repay a debt obligation. Many times the original creditor sells the debt to a collection agency. At some point the collection agency may realize that their attempts to collect the debt will be unsuccessful and will just quit servicing the debt. However, this outstanding debt still remains on the consumer’s credit report, usually for seven years. As the consumer’s financial situation changes, they will want to pay off the old debt. This can be a bit more difficult than it sounds; follow the steps included here to pay off your old debts.

Things You'll Need

  • Computer with Internet Access
  • Your Social Security Number
  • Copy of your Credit Reports
  • Printer or Pen/Paper
  • Phone

Launch your internet browser and go to the Annual Credit Report website. Federal law has mandated that every U.S. consumer have access to a free copy of their credit report once every twelve months. This includes a copy of the report from each of the three major credit reporting agencies – Equifax, Experian and TransUnion.

Select your state and then click on “Request Report.” Enter all of the required information to request online access to your credit report. You will need to request your report from each of the three credit reporting agencies as they do not all report the same information.

Print out a copy of your credit report. If you do not have access to a printer, write down all of your old debts. Include the creditor name (this will likely be a collection agency), the creditor’s phone number, the total amount due and the account number associated with the account. Credit reports may only include a partial account number but the creditor should be able to look up your account based on your name, address and/or social security number.

Organize your debts from smallest to largest. Depending on how many debts you have, and how much cash you have available, you may not be able to settle on all of your old debt accounts at one time.

Contact the first creditor listed on your debt list, the one with the smallest balance. Explain to them that you are in a position to settle on your old debt and offer them $0.50 on the dollar. It is not unusual for collection agencies to accept a portion of the debt as payment in full, especially on old debts. Many times the total amount due is inflated due to penalties and other associated fees. If the creditor is not willing to accept a reduced amount as settlement in full, you may choose to contact the next creditor and leave the first one until last.

Request a settlement letter from the first creditor that agrees to a reduced settlement amount. In this letter, you will want the creditor to list the reduced amount that they are accepting as well as verbiage to indicate that the account will be considered paid in full once the settlement amount has been received.

Obtain a cashier’s check for the settlement amount and make a copy of the settlement letter and the cashier’s check. Keep the copies for yourself in a safe place; do not ever dispose of these copies.

Mail the settlement letter along with the cashier’s check to the creditor. Follow-up with a phone call to let the company know that the payment has been sent. Ask that the creditor call you upon receipt of the payment.

Follow steps one through eight for the next debt in your list. Do this until you have paid off all of your old debts.

Tips & Warnings

  • Keep comprehensive notes of your communication with the creditors. Keep a record of the date, time and person of contact for every call made to the agency. Keep this information in a safe place in case you need to refer back to it in the future.
  • Do not give creditors electronic access to your checking account. It is not unheard of for collection agencies to withdraw more than the agreed upon amount leaving consumers in a lurch

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