Is it better to pay off current non-delinquent debt or my spouse's past credit delinquency?

Question

We are trying to clean up our credit scores and are about to come into some money. We know we need to pay off some debt, but are unsure whether to pay off old delinquency's or if it is better to use that money to pay off my current credit cards. My credit score is fine, but I don't like having any debt. His credit score is not very good at all, but I'm not sure how much paying off the old delienquency will help.

We are trying to clean up our credit scores and are about to come into some money. We know we need to pay off some debt, but are unsure whether to pay off old delinquency's or if it is better to use that money to pay off my current credit cards. My credit score is fine, but I don't like having any debt. His credit score is not very good at all, but I'm not sure how much paying off the old delienquency will help. Even if we pay off the old stuff, I will still be current and remain so on my cards, but I won't be able to be them down as quickly as I would like to.

what if we took the money and paid the current debt and then saved what we were paying towards the old stuff?

Answer 1

Before you pay off any delinquent debts, you need to understand a few things.

1) Paying off an old debt does NOT help your credit score, unless they creditor agrees IN WRITING to delete the entry from your credit.

All the creditor is required to do is show "paid" on your account, which does not remove the negative information. It will still be a bad mark on your history.

Also, as debts get older they do not effect your credit score as much. Debts over 5 years old have only a minor effect. But when you pay off an old debt, the activity date changes and it becomes a "recent activity" on your credit history, which will hurt your score. Therefore, never pay off an old debt unless they agree to erase it from your report, NOT update it to paid.

2) Debts will automatically fall off your credit report after 7 years, beginning on the date of the delinquency. If you debts are already 5-6 years old, don't pay them and let them drop off your record automatically.

3) Every state has a statute of limitations. The average time is 6 years. After this time period, the creditor can not sue you for the debts. So again, don't mess around with old debts.

4) By paying off and keeping your own debts current, you are keeping your credit score high. You can further help your spouses credit by taking advantage of your score, and co-signing loans or credit cards for him.

So, to answer your question....examine your spouses debts very carefully....pay off only the ones that will delete their entries, or debts that are very recent (2-3 years).

Answer 2

The answer to your question would depend on more details about the past credit delinquency. Sometimes paying off the old debt will actually hurt the score because of re-aging the account. The things with the biggest impact are the most recent activity. Taking down the current consumer debt is probably a better choice as the impact on the debt to available credit ratio is improved. Again, though, it depends on a number of conditions. You also didn't mention why you were trying to improve the score. A credit score is about getting credit. It will go up, it will go down. The point is to have great credit when you need it. Sometimes, taking the score down is the right thing to do if it improves the overall score over time. A 7 year old debt falls off the report, paid or not unless it's a judgment. This may be better in the long run than re-aging it with a payment. Check out www.myfico.com to learn the credit rules. You can learn more on www.wfwellness.com

Answer 3

Pay off your current credit cards first. This will improve your score and save you interest.

Then start working on the old debt. Start with the newest and work back to the oldest. The older the debt, the less impact on your score. You can negotiate settlement for 75% to 50%. Lump sum gets better deals. Payment plans have to be short term. Get any settlement agreement in writing before you pay anything and don't give them access to your bank acount. You can ask that the negative be deleted for payment -- some will, some won't.

Even if paying old debt doesn't help your score, remember that creditors look at more than your score. Paid delinquencies look better than unpaid ones. If you try to get a mortgage, they will insist you settle all your old debt.

Answer 4

Where exactly is the money coming from? Let whoever earned it or inherited it from his or her own relatives use it before paying anything for the other spouse. You never know what may happen, and having separate finances is a good idea even though, unfortunately, if you divorce, you may still have to split assets that you have tried to keep for yourself.

Unless you are the one who spent (or made him spend) his money, let him face the consequences of his own actions, at least if there is no money left over after you pay off your own debt. If the money is his, then of course, let him pay. If the money is yours, you could have nearly-perfect credit for yourself. If you think that a couple should share more, well, with great credit, maybe you will be in a better position to do something for both of you.

Answer 5

If the delinquent debt is recent, pay all of it and the minimums on the other debts.

If the delinquent debt is close to 7 years old, then it will fall off the credit reports soon anyway, so pay the new debts.

Answer 6

You should look at several items - cost of debt? Deductibility of the debt (mortgage vs. consumer) default clauses for delinquent debt (18-24% default rate vs. a 5 7/8 % mortgage), and the ability to wipe out one ledger vs. putting a dent in both. Remember, future monthly payments will be impacted if you can WIPE the entire debt out.

Think fund raiser and put a thermometer (goal) on a poster board on your refrigerator / office at home / whatever. When you pay the debt down, fill in your goal until you're done. More than one account? Use more posters. THIS WORKS and makes you concentrate on the debt instead of forget about it. It will also make you less frivilous with discretionary expenses, like new home shelf speakers versus making more principal reduction.

Get that noose from around your necks and pay it off! It's a freeing thing!

Answer 7

Better short-term: Pay off all the delinquent accounts.

Better long-term: Ignore all debts beyond the statute of limitations (varies by state) and pay off the most recent delinquent accounts. Any current debt should be paid down if there is any left.

Answer 8

Pay off the delinquent debt. The sooner it gets paid, the sooner if will get off his credit report. Having a current active balance won't hurt your credit.

After that, make extra effort to pay off whatever loan has the highest interest. When it gets paid, use that payment amount to go towards your next highest interest loan (in ADDITION to whatever you're already paying them). Etc, until you are out of debt.

Answer 9

Stay current for sure! Your credit rating is really kind of what carries you through in this world. As for the old debt try and work out a payment plan of some sort that is affordable. Most creditors will work with you, they want their money too. Good luck.

Answer 10

How about you take it and split it down the middle. Half on the delinquent and half on the current that way both are accomplished. Otherwise my advice would be to pay off the delinquent in full so that you stop getting fees and interest and your bad credit does not get worse.