Collections are an unfortunately integral part of American life. Over 70 million people have accounts in collections, which is about a third of the adult population. Dealing with collections is a major headache and can be damaging to your finances. But should you pay an old collections debt?

Why It Makes Sense to Pay Off Collections Accounts

Anyone who has had an account go to collections knows it’s not a pleasant process. Paying it relieves you of the anxiety that goes along with the knowledge that you owe money you haven’t paid back. And, the constant calls and letters will finally end. Further, you won’t have to worry about the collections agency taking you to court.

This can lead to some nasty penalties, including garnished wages.

Before you do anything though, it’s important to know the laws of your state. There are statutes of limitations for how long debt collectors have to bring a case against you to court for collecting debt. Make sure you understand the laws of your state well. It might even be wise to speak with a lawyer on this front.

There’s another significant reason why you should strongly consider paying old collections debts: salvaging your credit score. Having poor credit can hamstring you when you need to borrow money. With bad credit, you’re less likely to be approved for a loan. And even if you do get approval, the terms of the loan probably aren’t going to be ideal. This is because lenders want to work with individuals who are most likely to pay them back. It can be a big liability for them to lend money if they aren’t repaid.

Your payment history is the single-biggest factor in determining your credit score. At 35 percent of the overall rating, you’re going to get some serious point reduction if you have collections on your credit history. Paying off old collections debts can potentially raise your credit score, which will in turn make it much easier for you to borrow money.

What to Do If You Can’t Pay What You Owe

There are two major underlying reasons why people end up with collections notices on their credit report. One is you had the collection mistakenly added to your account. This can happen if there’s an error, or if you’ve been a victim of identity theft. It’s important to keep an eye on your credit report so you can rectify any such mistakes as soon as possible.

The other main reason people have bills in collections is they can’t pay them. There are lots of reasons people can’t pay bills. In fact, medical debt is actually one of the most pernicious forms, which is responsible by some accounts for about 60 percent of personal bankruptcies.

So, what do you do when you can’t repay your debt in collections?

One option is to enter a Debt Relief program. This typically begins by reaching out to a credit counseling agency, which works with consumers to find solutions for their financial woes. If the agency has a relationship with your debt holders, there’s a good chance it’ll be able to reduce your interest payments to something more attainable. This can sometimes work for debts in collections too, as collectors would rather receive some money than none at all.

How to Help Your Credit When You’ve Had Accounts in Collections

It can feel incredible once you’ve finally eliminated your collections accounts. In a way, it can be like a rebirth. But in reality, this is just the first step of the process. You’ll then want to work to repair your credit score so you can keep a clean credit report with no collections.

Here’s how you can improve your score:

  • Continue making sure there are no errors. Mistakes and fraud happen. It’s important to pay attention to your credit report so you know when something is out of place.
  • Pay your bills on time, and get current on any missed payments.
  • Lower your overall debt level. Not only will this make it less likely for you to get into trouble with debt in the future, it will lower your credit utilization ratio, which is an important factor in determining your credit score.

While it can feel unnecessary to pay off debts that have been in collections for an extended period, it’s still the right decision. Doing so will benefit you financially and help you gain some peace of mind.