You have to be careful with debt collectors because dealing with them can affect your finances in some unexpected ways. For instance, agreeing to repay a debt can restart your debt’s “statute of limitations.” This is often confused with the time frame on your credit report, though, so let’s clear up the confusion.

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Your debt’s “statute of limitations” gives creditors the right to sue you for a limited amount of time when the debt is past due. The time frame varies by state, but once it expires, those unpaid debts are considered “time-barred,” and a collector can no longer sue. As the FTC warns, talking to a debt collector can restart the statute of limitations on time-barred debts.

We’ve told you how this works in detail, but many people believe this is a myth. It’s not, but the confusion lies in your credit report. Typically, negative items like unpaid debts remain on your credit report for seven years. Settling a debt will not restart that clock—it’s totally separate from the debt’s statute of limitations. In short, if you settle on a debt, the statute of limitations may be restarted on it, but it will still drop off of your credit report in seven years from the time it was delinquent.

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CreditCards.com explains the mix-up in a bit more detail, so check out their post on debt myths below.

9 Debt Myths Debunked | CreditCards.com

Photo by frankieleon.



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