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I Can Afford to Payoff My Old Debt. Should I? – Emma


“Dear Steve,

I was financially reckless as a college student, incurring approximately $22,000 in various credit card debt that I ignored throughout graduate school & post-graduate training. Well, now I’m all done and I make a lovely, lucrative salary.

I want to buy a house. My credit score is in the low 500s. I can afford to pay off my $22,000 in a very short period of time. How do I begin to approach this? It seems that if I just pay every cent I owe, then my credit score will go down! What do I do??


Dear Emma,

Repaying your debts as agreed will not lower your score, it will increase it. And the good news is that repairing your credit when you’ve got the money to pay is a fairly easy process.

I think you should follow this link for a copy of your 3-1 consolidated credit report. You need to look at all the credit reports since they don’t all report the same creditors. While you are getting your credit report you can order your credit score as well. This will give you additional specific advice about actions you can take to improve your credit score further.

I would then suggest that you contact the creditors you still owe from the lowest balance due to the highest. As you pay one off, move on to the next.

You want the debts to show as paid, without any residual negative activity so don’t settle these debts. The amount of debt forgiven will be reported as a negative entry and you will have to pay the IRS income tax on the forgiven debt if the forgiven debt makes you solvent.

If you have not resumed credit activity again, you need to get a secured credit card, like a Visa or MasterCard to show you can handle credit. That will help to boost up your score as well.

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Please promise me one thing though, don’t borrow the $22,000 from an IRA, 401(k) or 403(b) retirement plan. And if that’s what you were planning to do, don’t.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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