Old debt, new collector: Negotiate? Ignore? Or pay up?

Question for the CreditCards.com expert

Dear Let's Talk Credit,
I received a letter from a third-party collection agency that has "bought" an old debt that is 5 years old. Is it best to reply with a counter offer of settlement or not to contact them at all? I have heard that each time you contact a debt collector it starts the seven-year time frame all over again. That is IF there truly is a seven-year time frame for bad debts. Is it true that a bad debt drops off your credit report after seven years?

I have not filed bankruptcy. I would much rather pay my old debts, but without all the fees that have been piled on by each debt collecting company that "buys" the old debt. For instance, I have an old debt with a cell phone company (one of several). The amount owed on the last bill was $177, of which $150 was for an early termination fee. A divorce and unemployment have prevented payment (as every penny I could scrape together was needed for daily living). I just received a letter from the third collection company and they are asking for a settlement amount of $275.

I am considering replying to them with a more reasonable counteroffer, unless that is the worst thing to do. My credit score is already in the 400s to 500s, but I am working to improve it. In the past three years I have cleared four old debts. Your advice would be appreciated. -- Judy

Answer for the CreditCards.com expert

Dear Judy,
The Fair Credit Reporting Act requires that negative information older than seven years must be removed from your credit report. Also, making contact with a debt collector or making a payment on a collection account will not affect the period for reporting any of your negative accounts on your credit report. Some people confuse this credit reporting time period with the statute of limitations for collecting a debt through legal action. The clock associated with statute of limitations time frames (typically three to 10 years), can be affected by making a payment and sometimes even contacting the collector (depending on the laws in your state). 

Regarding settling your accounts in collection: For negative accounts still listed on your credit report, it is better to have them listed as paid. Settling for less than the full balance owed is one way to pay an account. If you do decide to settle these accounts, they will appear as settled in full on your credit report. Should you need to access new credit before all the negative accounts are removed from your credit report, it will be important to show potential lenders that you did pay at least a portion of what you owed.

Negotiating with the collector(s) pursuing your old cell phone debt is a responsible way to clear the debt and save some money in the process. Just be sure to get the agreed upon amount in writing before making any payments. Keep copies of the settlement agreement and dispute the item with the credit bureau reporting it, if the account is not listed correctly.

As far as the collectors' fees go, they're negotiable. The law says they must be reasonable and can include their collection costs. Yours is a well-aged debt, and unlike other collectibles, it goes down in value each time it's passed from hand to hand. 

Keep up the good work! Don't worry, your credit score should improve as the old negative accounts are removed from your credit report while you add positive credit information by paying your current accounts on time and as agreed. 

Let's keep talking!

See related: Avoiding debt collectors' fees

Meet CreditCards.com's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.

Updated: 03-18-2019