“I was financially illiterate as a teen/early 20s, and absolutely obliterated my credit”: Ruined my credit as a young adult, should I pay off old debts or wait for the statute of limitations?

Hi Money Minder,

So, I totally messed up my finances when I was younger. Got myself in a pickle with credit cards and student loans. Now, I’m trying to clean up the mess. My credit score is a sad 608, and I’ve got these old debts hanging over my head. Do I pay them off now or wait until they disappear in a few years? I only have a little credit card with a $500 limit, so I’m trying to be responsible with that. Any advice on how to fix this mess? I know I made mistakes, just need some guidance on how to make things right.

Thanks for any help you can give me!

Sincerely,
Financially Flustered

Response from THE MONEY MINDER:

Hello There,

I understand how overwhelming dealing with debt can be, especially when it feels like there’s a mountain to climb. It’s commendable that you’re taking steps to rebuild your credit and improve your financial situation.

In terms of your outstanding collections debts, it’s important to weigh the pros and cons of tackling them. While waiting for the statute of limitations (SOL) to expire may seem like a viable option, it’s essential to consider the potential consequences. Unpaid collections can continue to negatively impact your credit score and may limit your financial opportunities in the future.

Given your current credit score and financial standing, it might be beneficial to address the collections debts gradually. Starting with the smallest debt first and negotiating a settlement or payment plan could be a practical approach. This way, you can make progress in clearing your debts while also improving your credit history.

Additionally, maintaining responsible credit card use, like paying off your card in full each month, is an excellent strategy for rebuilding your credit. Consistent on-time payments and responsible financial habits will gradually enhance your credit score over time.

Remember, it’s essential to seek financial advice from a reputable credit counselor or financial advisor to develop a customized plan that suits your specific circumstances. Taking proactive steps now will set you on the path towards financial stability and a brighter financial future.

Best of luck on your financial journey,
THE MONEY MINDER