How to Pay Off a Derogatory Debt

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Beginning to pay off your derogatory debt is the first step toward improving your financial situation. When you no longer have debt collectors calling you to settle the balance of old accounts, you can focus on improving your financial future instead of trying to resolve the past. Companies can sue you for not paying old debts, so you’re also freeing yourself from the chance of being taken to court. Derogatory marks typically stay on your credit report for seven years, so don’t expect to see much of an impact on your credit score.

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Review your credit report to find delinquent accounts. The most recent instances of derogatory debt are typically the most harmful to your credit report, so it’s best to pay these off first.

Contact the creditor to see if it will agree to lower the balance of your payment. If this occurs, be aware that any forgiven amount will be reported to the IRS and show up on your Form 1099 as earned income.

Negotiate an update to your credit report with the company. Derogatory debt stays on your credit report for seven years, even when you pay it off. Sometimes, however rarely, a creditor will agree to remove the mark from your account by sending credit bureaus a pay-for-delete letter. If the creditor won’t agree to this, ask if the company will agree to mark your account as paid on your credit report.

Wait until seven years has past from the date the derogatory mark was added to your credit report for it to be removed, unless you were successful in getting the company to remove it.


  • Paying off your derogatory debt won’t raise your credit score by many points. The fact that you have delinquent marks on your credit report is what counts the most, not that you’ve paid them off.

    If you don’t pay your delinquent debts, you may face collection lawsuits, default judgments and wage garnishments, so it’s important to settle with the company to avoid these situations.