Dear Penny: Should I Pay Off Old Credit Card Debt If It’s a Struggle?

A son puts his arm around his mother's shoulder as they look at their credit card debt.
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Dear Penny,

I have some old credit card debt. It's enough to seriously strain my finances, but not enough to get loan consolidation. I have been trying to pay two individual card companies even though the accounts are closed. I really can't afford it. One of them even told me that the debt is so old that they can't really force me to pay.

I just read an article that said if I make payments, it resets the statute of limitations, so if paying is a struggle, I'd be better off not paying. These debts range from $500 to about $1,500. What will actually happen if I just stop paying old debts on closed accounts?

Thank you!

— Indebted

Dear Indebted,

I’m sorry for the strain you’re feeling, and I’m happy to see you considering your options to reduce the burden of your credit card debt.

As you look into routes for dealing with debt, non-payment is one option to weigh alongside the rest. Stopping payment on debts is a valid option that a lot of financial advice ignores because of the shame our culture attaches to debt. Debt is a morally neutral way to access resources when you need them, and lenders and (especially) credit card companies factor non-payment into their business models.

Not paying off your debt comes with risks; you just have to weigh those against the strain on your finances that happens if you try to keep up with payments.

Yes, it’s true that credit card companies and debt collectors are stuck with a statute of limitations, so they only have so many years to sue you for debt you owe them — which is their only route to “force” you to pay. That timeline is set by the state you live in and varies between three and 10 years, so check with the rules in your state to see where you stand.

Note, though, that debt collectors can still report the debt to credit bureaus and contact you about the debt after that period; they just can’t take you to court anymore.

It’s also true that activity on the account resets that statute of limitations. In most states, the clock starts on the date of your last payment. That means if the statute of limitations in your state has passed since your last payment on an account, the owner of the debt can no longer sue you for repayment. And if you’re hoping to ride out the statute of limitations, you can’t make a payment.

If you don’t make payments, you risk these consequences:

  • You could be sued if you’re within the statute of limitations. Debt collectors have to weigh the cost of a lawsuit against the amount they could collect, and smaller debts might not be worth it. A CFPB report found that only 15% of people who’d been contacted by a debt collector had been sued for the debt.
  • Non-payment can be reported to credit bureaus, which will remain on your credit report for up to seven years.
  • The balances could count against your credit utilization — the amount of your available credit you use. Closing the accounts also affected your credit utilization, because you reduced your available credit (but it might still have been the right choice if closing those cards reduced your stress).
  • The balances will continue to increase due to interest and fees.
  • Debt collectors can continue to call you to try to negotiate a payment plan. Their behavior is highly regulated, but debt collectors often get away with unfair, deceptive and harassing practices because of a lack of enforcement. So, having debt in collections can add a serious irritant to your life.

No one can say for sure whether a company will decide to sue you for debt, and we can’t even say exactly how it’ll impact your individual credit report and score.

But, in my experience, small credit card debts like those you hold will wallow in collections for several years, and then they’ll slowly drop off your credit report. You can take steps to protect and rebuild your credit score in the meantime.

Letting debts stand while you’re within the statute of limitations to be sued might be incredibly stressful, so that’s a real factor to consider as you weigh your options. But if you look at the pros and cons and decide non-payment is the path that’ll give you the most relief and peace, take that path without shame!

If, instead, you decide to pay down the debt, consider popular payment methods like debt snowball versus debt avalanche to help you get back on track.

Dana Miranda is a Certified Educator in Personal Finance® (CEPF®), author, speaker and personal finance journalist. She writes Healthy Rich, a newsletter about how capitalism impacts the ways we think, teach and talk about money.