Got ‘Zombie Debt?’ Here’s What to Do About It


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What is zombie debt?

Ever faced financial difficulties, made you unable to pay a debt? It is pretty distressing. Or possibly, you know someone struggling with debt for whom this show might be beneficial.

Dealing with overdue accounts can be stressful, involving ruthless debt collectors and dropping credit scores. Whether you wish to cleanse your credit reports of negative marks or deal with resurrected ancient debts (known as zombie or phantom debts), it’s vital to understand your rights and your options.

How old debt influences your credit history

Your credit history is significantly affected by old debts. The credit bureaus (Experian, Equifax, TransUnion) manage your credit files for a specific period. Your positive, on-time payments stick around for ten years.

However, negative records like late payments or accounts surrendered to collections last for seven years. But remember, certain types of bankruptcies may stay on your records for up to ten years.

A prevalent misbelief regarding old debts is that paying them off or settling improves your credit scores instantly. However, the reality is different; every old debt you’ve defaulted on stays on your credit report for seven years.

Negative information on your credit scores from old accounts does damage your credit scores. Yet, they become less devastating as they age. On-time payments and new, positive data help repair damaged credit.

What is the statute of limitations on debt?

The statute of limitations is a law that provides creditors a deadline to sue for unpaid debts. The statute varies based on your location, the type of debt, and your agreement with the creditor.

For example, the limitation term for credit card debt is three years in some states and ten in others. However, debts like income taxes and federal student loans do not expire—you’re always liable.

So, even if a delinquent debt has been dropped from your credit history after seven years, the creditor still might legally sue you. Note, credit reports and statutes of limitations are separate entities and are often confused.

Also, even if the deadline for a creditor to sue you has passed, they can still contact you to collect overdue money indefinitely!

In short, the statute of limitations sets a deadline for creditors to take action, but it doesn’t erase the debt. Some actions can restart a debt’s statute of limitations, known as ‘re-aging’ an old debt. Debt collectors employ strategies to trick you into taking such actions.

For example, some states reset the limitations clock whenever you act on an old debt. The act could be as simple as recognizing that an old debt is yours, promising to make a payment, or agreeing to a repayment plan.

How to shield yourself against zombie debt collectors

Zombie debt collectors buy old debts at a fraction of their worth in hopes of making a profit. These might even be the ones already settled or discharged in bankruptcy and could have already been dropped from your credit reports.

To protect yourself against harmful zombie debt collectors, watch out for these tactics:

  • Harassing you, an illegal activity.
  • Misrepresenting their company, they cannot pretend to be a lawyer or litigation firm.
  • Lying about the amount you owe or threatening you with jail time.
  • Threatening a lawsuit which if your debt’s statute has expired, is illegal.
  • Suing you even if the statute has expired.
  • Getting you to pay for someone else’s debt.

If a collector harasses or lies, file a complaint with the Consumer Financial Protection Board. Never share your Social Security number or any confidential information with a collector. If contact ensues over the phone, get the company’s name and address, request communication by mail, then hang up.

Remember to ask for verification of the debt within 35 days of their first contact by mailing a certified letter. They must prove the existence of the debt and their right to collect it.

Four ways to handle an old debt

Here are four potential strategies:

  1. Pay off the total amount of debt owed.
  2. Make payments on your debt. But be aware, it could restart the statute of limitations, reducing your legal protection.
  3. Settle your debt for less.
  4. Pay nothing on your debt, but remember, creditors can continue trying to collect money from you indefinitely, even if they can’t sue you.

The way forward depends on your unique life and financial situation. It’s YOU who determines whether you can afford to pay a rightful debt, not me.

This article originally appeared on and was syndicated by

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8 warning signs you have too much debt

8 warning signs you have too much debt

Debt is a powerful tool that can boost your success or cause your financial life to crash and burn. The trick to using debt wisely is knowing the difference between good and bad debt and the right amounts based on your income and goals.

Today, I’ll cover tips to use debt strategically, so it helps not hurts you. Plus, you’ll learn eight ways to know if you have too much debt and action steps to protect your finances.

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Debt is a complex topic because people have different opinions about it. Some insist that no amount of debt is acceptable, not even a home mortgage. Others acknowledge that some debts, such as a mortgage or student loans, are OK but using a credit card

 or taking out a car loan is a mistake. There’s a camp that believes using debt to purchase anything is acceptable as long as you can afford the payments.

My recommendation is that you should consider going into debt when:

  • You’re confident that it will give you a financial return.
  • You have a steady income or ample savings to repay it on time.
  • You qualify for a competitive interest rate and terms.

For example, if you buy an affordable home with a low-rate mortgage, you can build equity over time. As you pay down the principal balance and/or your home value appreciates, you build wealth. That’s why financing a home is generally considered good debt.

Additionally, mortgage interest rates are at historic lows. They also come with an interest tax deduction, making home loans cost even less on an after-tax basis. Depending on where you live, buying a home may be less expensive than renting a similar property, especially outside of large cities.

Another example of good debt is a reasonable amount of student loans. Interest rates vary depending on whether you have a federal or private loan; however, they typically have relatively low interest rates.

Plus, some amount of interest paid on education debt is tax-deductible, which further reduces the cost. And best of all, getting an education gives you the ability to earn more over your lifetime.

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The problem with taking on too much debt is that it can hold you back from accomplishing key objectives, such as building an emergency fund, investing for retirement, or reaching other financial dreams. So even for good debts, such as a home or education loan, it’s important to maintain reasonable levels based on your current or expected future income.

The takeaway is that you shouldn’t go into debt for something that doesn’t give you a financial return. For instance, financing consumer goods or vacations causes you to lose wealth, not build it.

Add high-rate credit card interest on top, and you have a potential financial disaster. If it takes years to pay off a luxury item charged on a credit card, it could end up costing double or triple the original price.

8 signs of too much debt and actions to take

Here are eight warning signs that you may have too much debt and action steps to get it under control.

If you don’t know how many or how much total debt you have, you’re not taking care of your financial health. Staying aware of your accounts and debt balances is the first step to getting them under control and improving your entire financial life.

Take action

Get organized by creating a spreadsheet listing each account name, number, interest rate, and amount owed. Then sort your debts from highest to lowest interest rate.

In general, that’s the best way to tackle debt because it saves the most interest, which you can use to pay down more debt. However, if you have a small debt with a low interest rate that you want to crush first, go for it!

If you’re afraid to open your paper or e-bills because you don’t want to see the balances, remember that hiding from a financial problem doesn’t make it go away. Missing due dates causes you to rack up late fees and your credit scores to drop, which causes more money problems.

Take action

Be proactive about staying on top of your bill due dates. You might enter them in a spreadsheet, in your calendar, or centralize them in your bank’s online bill pay center.

Contact your creditors to discuss any financial hardship and ask for their help. You may be able to work out a payment plan to get caught up with overdue balances or have late fees waived.

If you’re stuck in a cycle of only paying the minimum on your credit cards each month, that indicates you’re carrying too much debt. As previously mentioned, as interest accrues, you could end up paying double or triple the original cost of the items you charged.

For example, say you have a $5,000 balance on a card that charges 18% APR. If you only paid the $100 minimum, it would take you more than 30 years to pay it off! If you paid $250 per month, you’d pay off the balance in less than nine years.

And paying $500 would wipe out eliminate the debt in just over four years. These pay-off time frames assume that you don’t increase credit card balances with any additional charges.

Take action

Make a plan to stop making new charges and pay as much as possible on credit cards each month to get out of debt as quickly as possible.

If you’re using credit cards to satisfy a shopping habit or buy necessities during a rough financial patch, you’ll eventually hit your credit limit. That hurts your credit and may cause you to incur fees if you go over your credit limit.

Even if you pay more than the minimum, having a maxed-out card causes your credit utilization ratio to skyrocket, killing your credit scores. If you’re consistently using more than 20% to 30% of your credit lines, you probably have a debt problem to tackle.

Take action

Stop making charges or getting expensive cash advances on maxed-out cards and start making higher payments than the monthly minimum.

If you don’t have a cash reserve, any unexpected expense could send you into a tailspin that causes you to go further into debt. Having some amount of savings is a critical way to avoid getting into debt in the first place.

Take action

Make a plan to radically cut your expenses and begin setting aside as much as possible each month in an emergency fund at an FDIC-insured bank. Start small by setting aside 1% of your income until you have several months’ worth of living expenses in the bank.

If you recently got denied credit, you probably have low credit scores. Poor credit can result from one or many factors, such as having late payments, judgments, liens, too little credit history, or too much debt. Check out 7 Essential Rules to Build Credit Fast to learn how credit scores get calculated and tips to raise them.

Take action

Use a free site such as Credit Karma or to review your credit reports and make sure there aren’t any errors hurting your scores.

If you’re lying to family or friends about your spending habits or how much debt you have, you probably know there’s a severe problem that you need to handle. If you’re worried, losing sleep, and having trouble concentrating due to debt, it’s time to take action.

Take action

Create and stick to a realistic budget or get help from a debt counselor or financial planner. The National Foundation for Credit Counseling is a great resource to find help.

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Your DTI is a crucial ratio that lenders use to evaluate you, and you can use it, too. Even if you don’t plan on taking out a large loan anytime soon, calculating your DTI is an excellent way to monitor your financial health over time.

Take action

Figure your DTI by adding up your total monthly debt payments—including credit cards, loans, and your rent or mortgage payment—and dividing that amount by your gross (pre-tax) monthly income. For example, if your monthly income is $5,000 and your debt is $2,500, your DTI is 50% ($2,500 / $5,000 = 0.5).

Most mortgage lenders require that your house payment wouldn’t exceed about 30% of your monthly gross income. Your total debt, including the new mortgage payment, shouldn’t add up to more than about 40% of your gross income.

If you have a high DTI, work on paying off your debt by cutting expenses, increasing your income, or doing both. Additionally, paying down your outstanding debt balances boosts your credit. That may allow you to qualify for debt optimization tools, such as a balance transfer credit card or a low-interest personal loan.

The good news is that it’s never too late to turn around your finances if you recognize these debt warning signs. The best way to improve any money problem is to be brave and face it head-on. Denying a debt problem only makes it worse. So, the sooner you address it and take these recommended action steps, the sooner you’ll make positive financial changes.

This article originally appeared on and was syndicated by

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