When Not Paying Off Old Debts Can Hurt

Not paying off old debts can hurt a person's credit, hinder future loans or employment and can lead to legal problems. Old debts will follow someone for years and whether a debt was forgotten or willfully ignored, acting quickly to repair the debt is important to an individual's credit history. Understanding how old debt can hurt in the long run will enable individuals to avoid debt problems and help clear outstanding debts or judgments against them.

Credit Reporting Agencies

When a person defaults on a loan, credit card or other payment, most businesses report the lapse to a credit reporting agency. These agencies are used in most countries to establish a credit score for each individual based on her credit history. These credit scores help businesses and loan companies decide whether to offer loans to individuals. Negative reports on a credit score will often result in denial of credit or high interest rates.

Loans

From home loans to credit cards, not paying off old debt can prevent an individual from acquiring a loan years after an old debt was defaulted on. Not paying off old debts can prevent individuals from getting a loan for a home or car. If action has been taken to remedy an old debt, it will show up on a credit report and many lenders will work with people who show sincere effort in repairing debt.

Employment

Many companies use background checks and credit checks to determine the reliability and responsibility of possible employees. Not paying off old debt can hurt a person's chances of gaining employment, whether he's qualified for the job or not.

Collections

When a person defaults on payments, the matter is often turned over to a collection agency. These agencies will try to work out payment plans with an individual. If a payment plan cannot be made or the person who defaulted can't be reached, collection agencies will try to locate an individual through any legal means possible. Collection agencies will contact current and past employers, family members, landlords or anyone else who can help them locate an individual. These calls and letters can become stressful and embarrassing. Ignoring collections and old debt will just exacerbate the problem.

Legal Problems

If a business or collection agency is unable to work out a payment plan or find a person, it will usually use legal means to try to get paid. A claim is made to the court and can result in garnishment of wages, liens on property or even a warrant for an arrest.

Prevention/Solution

Individuals unable to pay off current debt should contact the lender as soon as possible to work out a payment plan. If the person can't find an equitable agreement with a business, there are credit counseling agencies that will help instruct a person on consolidating any outstanding debt.