How To Pay Off Old Debt

Before settling bad debts, consider options for paying them off

A woman looks over an old account in collections.
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When a debt goes unpaid, your account could be turned over to a collection agency. Debt collectors can use different tactics, including civil lawsuits, to get you to pay. 

Old debts can eventually become time-barred, meaning debt collectors can no longer sue you. But negative credit information related to old debts—including those that have landed in collections—can stay on your credit report for up to seven years.

Paying off collection accounts could help to clean up your credit history and potentially add points back to your score. Here are some tips on how to pay off debt in collections and what to know about choosing debt settlement instead. 

Key Takeaways

  • Figuring out how to pay off debts when they've gone to collections doesn't have to be stressful. 
  • Options include working out a payment plan with creditors, enrolling in a debt management plan, or negotiating a debt settlement.
  • Hiring a debt settlement company can cause severe damage to your credit scores.

Gather Information on Your Debts

The first step in paying off old debts is knowing what you owe and to whom you owe it. So, start by making a list of past-due debts that includes:

  • Amount owed
  • Creditor name and contact information
  • Last payment date

Your credit report can be a good resource for finding this information if you don't have recent statements from creditors or debt collectors. You can get a free copy of your credit report from each of the three credit bureaus through AnnualCreditReport.com

Check your credit reports for any errors, and dispute any incorrect information you find with the reporting credit bureau.


Again, keep in mind that some of your old debts may be time-barred. This means that the statute of limitations for enforcing collection actions against you has passed. The time frame for this varies from state to state, but it's typically between three and six years from the last date of payment.

If you have a debt that's close to the statute of limitations, paying it off may not make sense since you can no longer be sued for it. But the delinquent debt could still stick around on your credit report for up to seven years. For decisions like this, the FTC recommends speaking with a lawyer.

In some states, making a partial payment or even agreeing to pay an old debt restarts the statute of limitations. 

Work Out a Debt Payment Plan

Once you've identified which old accounts you want to pay, the next step is to decide how to pay off debt in collections. You could do this on your own, or you could work out a payment plan with the help of a credit counselor. 

On Your Own

Working with your creditor or debt collector on your own is the most direct approach. Essentially, you would contact the creditor or debt collector to discuss payment plan options. 

The advantage of doing so is that you may be able to halt any collection actions that are in progress against you, including the threat of a lawsuit. But it's important to have a strategy going in so you don't end up feeling pressured to commit to paying more than you can afford. 

So before approaching your creditors, consider:

  • How much you owe
  • What you can afford to pay each month
  • How long you think it will take to pay off old debt

Be aware of your rights. By law, a debt collector has to tell you how much you owe and the name of the original creditor. If you feel that a debt collector is infringing on your rights in any way—i.e. refusing to provide information or harassing you—you can file a complaint with the Federal Trade Commission. 

With Assistance

If you're not comfortable dealing with your creditors or debt collectors directly, you may consider getting help through credit counseling services. Credit counselors can review your budget and financial situation to help you choose a realistic strategy for how to pay off debt in collections. 

They can also help you create a debt management plan through which you make a single payment to the credit counselor each month. The credit counselor then distributes the payment among your creditors.

This can simplify how to pay off debts when you've fallen behind. But your success depends on your ability to stick with the plan and your creditors' willingness to accept it. 

Be wary of any credit counseling service that asks for a large fee upfront or makes promises about paying off your debts that seem too good to be true. 

Settle Debt for Less Than You Owe

Debt settlement is an alternative option for paying off debt in collections. With debt settlement, you're asking your creditors to accept less than what's owed and cancel out the remaining debt. You can negotiate a debt settlement on your own or with the help of a debt settlement company. 

On Your Own

Negotiating debt settlement on your own starts with listing out your debts to determine:

  • How much is owed
  • How far behind you are on payments
  • What you can afford to offer as a settlement

Your creditors may expect you to offer a lump sum to settle a debt. For example, if you're attempting to negotiate a $5,000 balance down to $3,000, you may need $3,000 in cash to seal the deal. Other creditors may allow you to break up the settlement into several smaller installment payments. 

This can help you clear a debt in collections but it doesn't guarantee that negative account information will be removed from your credit report. Under current credit reporting laws, negative information that's accurate can only be removed with the passage of time.

With Assistance

Debt settlement companies or debt relief companies can negotiate settlements for you, typically in exchange for a fee. This can save you the trouble of having to bargain down  your creditors. 

But it's important to know what you're paying for, as debt settlement companies can't necessarily get you a better deal than you might be able to get on your own.

And just like with credit counseling services, it's important to research any debt settlement company you're considering working with to make sure it's legitimate. Avoid any company that requires an up-front payment or makes guarantees they can settle your debt.

Finally, hiring a debt settlement company may be less than ideal because the companies often ask you to stop making payments on your debt, which further hurts your credit score. 

The IRS considers forgiven or canceled debt to be taxable income in most cases, so keep that in mind if you're weighing the benefits of debt settlement.