When you’re behind on your bills, you can expect debt collection calls and letters. Depending on how far behind you are, those calls and letters range from the innocuous (hey, it looks like this one slipped your mind … maybe send some money?) to the downright scary (if you don’t pay us right now, we’re going to sue you!).

If you’ve got the ability to do so, you want to settle the debt either by paying in full or negotiating a lower balance.

Not so fast. Sending payment may, in fact, be the worst possible idea.

Here are just a few reasons why:

  1. If the debt has been sold to a debt buyer such as LVNV Funding, Portfolio Recovery Associates, Midland Funding, or similar outfit then there’s a decent chance they can’t prove you owe them any money at all.
  2. Even if the debt buyer can prove that they own the debt (which is often unlikely), they may not be able to substantiate the balance they claim is due.
  3. Settling a debt for less than the balance due may expose you to a tax liability.
  4. Making a payment on an old debt may reset the statute of limitations, the time a creditor can legally sue you for the unpaid balance due.
  5. Making a long-term settlement agreement may come with additional interest charges.
  6. Settling a debt for less than the balance due will create a less-than-favorable mark on your credit report.
  7. Old debts fall off your credit report, but if you make a payment then the reporting period is reset and you’ll have to contend with the negative mark for a longer period of time.

This isn’t to say that settling an old debt isn’t sometimes a good idea. Sometimes getting the monkey off your back is an excellent choice. But more often than you think, doing nothing and forcing the creditor to file a lawsuit will get you a far better result.

The trick is to make sure you make your decisions after gathering all the facts and weighing the risks. It’s a personal financial decision, and what’s right for you may not be correct for someone else.

Hit of the hat to my colleague in Arizona, John Skiba, for the inspiration for this article. If you’re in Arizona and need help with a debt collection lawsuit, get in touch with him by clicking here.