I've got a question for Rich

[Rach]

Or anyone, I guess


We are starting to pay down our debt. What I've been wondering is should we worry about the debt first or should we first pay anything outstanding on our credit report?

To better explain, there are some outstanding bills on there that aren't reporting monthly, but have been there and could be affecting our credit. Should we pay those off and close them (will be a total of like $1000) or should we focus on the debt that is eating our pockets AND our credit report?

I'm not sure what is best b/c I wonder if it is best to pay off those bills as it will help our credit or if we should just leave them for now, focus on what's eating our money, and then when that debt is gone- pay off those outstanding bills. What do we do first?

[KatReborn]

I would also be interested in the answer to this question, DH and I have a very similar situation

[kiwijus]

I would guess that if you get rid of your outstanding debt, and just pay the minimum due on your "good debt", you could get much better rates on consolidation loans of you go that way, because the old debt that's been sitting there, dragging your score down would then be relieved, and the banks would see you making attempts in earnest to pay off your debts.

In other words, as long as you're not putting off current payments to do it, I'd pay old debt before new.

[Rach]

Originally Posted by kiwijus I would guess that if you get rid of your outstanding debt, and just pay the minimum due on your "good debt", you could get much better rates on consolidation loans of you go that way, because the old debt that's been sitting there, dragging your score down would then be relieved, and the banks would see you making attempts in earnest to pay off your debts. In other words, as long as you're not putting off current payments to do it, I'd pay old debt before new.

Yeah, I've thought about that but I've read that if the old debt hasn't been updated, to not bother with it right now b/c it's not necessarily affecting your credit too much.

I don't know if that's true though Would it really make a difference in our credit score right now if we paid it off, is what I wonder?

We want to buy a house in a couple years and besides paying down debt, want to get our scores up...So I'm just unsure what should be the focus right now and if the old debt would really make a worthy difference enough to pay it right now.

[kiwijus]

Depends. In the condition banks are in right now, they're probably not going to give you a mortgage without looking at your whole credit score. Even though things drop off at the end, I think they can still tell that things DID drop off instead of being paid off. So, technically, you're still a high risk, even though the debt isn't there any more, you know?

With $1,000 worth of old debt, I'd think your tax return would pretty much eat that up, and then you'd be completely up to date, and only have to worry about the payments you have, and from there you'd be free to clear your current debt.

I don't know, ask Rich.

You're right though - by now the damage is done to your score itself. I don't think it will actually bring your score UP at all to pay them off, I think it just looks better, makes you a "safer" investment in the long run, if they see that you at least did eventually go back and pay your debts.

[guynavywife]

Once something negative is on your credit report, the damage has been done.
Worry about first paying off those items that are currently owed, and not on your credit report as unpaid or defaulted.
If you pay off an old item which is on your credit report as defaulted or in collections, it will stay on your report and reflect negatively, even though it is now paid.
The idea is to keep new negatives from being reported.
If you have an item which may get reported soon, you can always call them and have them agree to not report if you do a payment plan or pay it off.


An example of the advantage of this:
If you have one item which is on your report as defaulted or or unpaid, that item has less and less affect on your score as it ages. Once it is 7 years, it needs to be removed. By that time, if you have no new items reported as negative, your score actually goes up.
If you pay on that item, but a new item gets reported, you have the old item getting older, still reflected as having defaulted at some point, PLUS a newer unpaid item, both dragging your score down.

[MadamMedic]

I think you need to show that you at least attempted to pay off the old stuff. DH has a repo car that is going to hit the 7 year forgivness or whatever it is soon, but we learned that it can still come back to haunt us later if he didnt at least show some kind of payment attempt......

[Chelly]

I always thought old, unpaid debts don't affect your credit anymore once they are off your credit report. I don't mean to TJ but can Rich explain that too?

[guynavywife]

Originally Posted by MrsDarland I think you need to show that you at least attempted to pay off the old stuff. DH has a repo car that is going to hit the 7 year forgivness or whatever it is soon, but we learned that it can still come back to haunt us later if he didnt at least show some kind of payment attempt......

Nope, not if after the 7 year mark you start writing letters to the reporting agencies and collection agencies. It is generally against the fed and state laws to keep reporting and or not remove most debts after 7 years after the debt first went into default. (plus a few months). Once it is off, it almost becomes irrelevant.

[kiwijus]

Originally Posted by guynavywife Nope, not if after the 7 year mark you start writing letters to the reporting agencies and collection agencies. It is generally against the fed and state laws to keep reporting and or not remove most debts after 7 years after the debt first went into default. (plus a few months). Once it is off, it almost becomes irrelevant.

Nope. It's not 7 years after the debt went into default. Legally (I was told by a guy in finances here on base, anyways), they have 7 years after the last time they talked to you. Meaning, if they call your house, you answer, you acknowledge the debt AT ALL, they have seven years from that point before they have to take it off your report.