Pros & Cons to Paying Off Credit Card Debt
It goes without saying that there are great reasons to pay off your credit card debt. But are there ever good reasons not to pay? The answer is a little more complicated than you would think.
When it comes to dealing with your open credit card debts, paying off the full balance is usually the best move you can make. However, for old credit card debt — specifically any accounts in collections — there can be major cons to paying it off. So before you offer money to a collections agency, consider the following information.
Should you pay off credit card debt in collections?
Contrary to what you might think, paying off debt that’s in collections is not always good for your finances. If you have credit card debt that’s been sold to a collection agency, these are some of the reasons to hesitate before paying it off:
- Credit scores: Paying off the balance will not remove the collection account from your credit reports and it doesn’t necessarily improve your credit scores. Also, if the account is old, it doesn’t have much impact on your scores anymore.
- Automatic removal: Information about unpaid debt will be completely removed from your credit reports after seven years. If the removal date is coming up soon, you might want to simply wait for it to fall off.
- Legal liability: Each state sets a limit to the amount of time you can be held legally liable for unpaid debt. This is also known as the statute of limitations. If the statute of limitations has passed, the debt collector can no longer take legal action against you to collect the money.
- Affordability: Even if the debt collector sues you for unpaid credit card debt, you might have a defense. If your income is very limited or you exclusively live off of a benefit like Social Security, you might not have to pay.
However, if the debt is legitimate, there can still be good reasons to pay. If the collector sends you a notice of a lawsuit, if the debt is preventing you from qualifying for a mortgage, or if you’ve made a verbal or written promise to pay, you may need to send money.
But before sending a payment, talk to an NFCC-certified credit counselor and get advice on how to safely communicate with the debt collector.
Pros and cons to paying off open credit cards
As far as open credit cards go, paying off your balance is almost always the best idea. Credit card debt is some of the most expensive debt you can have. In fact, the interest rates are so high — they’re currently almost twice as high as the average rate on personal loans — that even if you make your monthly payments, there’s a chance you’ll never pay off the full balance.
Here are some great reasons to pay off an open credit card account:
- Avoid ultra-high interest charges
- Improve your credit scores
- Get approved for better, more affordable loans
- Avoid potential late or missed payments
- Relieve the stress of carrying debt
- Free up cash for important goals like building your emergency savings
Is there ever a good reason not to pay off a credit card? Yes, although we can only think of one! If you only have enough money for an upcoming necessity like paying rent, and you can’t pay for it with your credit card, then you should keep your money to cover that cost. In other words, making sure you have a roof over your head is definitely more important than paying off your credit card.
Get help paying off credit card debt
If money is tight and you’re not sure how to manage credit card debt, help is available. A certified counselor at one of our partner agencies can review your situation and advise you on the wide variety of debt relief resources available.
Depending on your circumstances, they might help you enroll for a debt management plan (DMP), offer counseling on filing bankruptcy, advise you on how to make a debt settlement, or simply share their personalized, expert advice.
