There’s a statue of limitations on debts. At some point, each state tells creditors to give up and go home — how long that takes varies from state to state. That statue of limitations can make it seem like a good idea to just forget about your older debts.

But if you’re working on getting your financial house in order, simply ignoring old debts may not be in your best interest. Sure, eventually they’ll pass the statue of limitations. But this tactic holds plenty of danger for your finances. Up until the day that your debt expires, your creditors have rights of their own. They can continue to try to collect on your debt — including taking you to court over the matter. And some creditors are willing to take more extreme measures the closer you get to the statue of limitations. Remember, a court case is always more expensive than just paying up would be.

More importantly, in the long run, just because the statue of limitations is getting close for a particular debt doesn’t mean that it drops off your credit report. Even when your creditors can no longer collect, you look like a bad credit risk. Perhaps you ignored an old debt to pay off more current bills faster. Your more recent credit could look great, if not for that old debt dragging you down. If you’ve got big plans, getting rid of that old debt is crucial. It always looks better for your credit history to show that a debt was paid off. Negotiating some sort of settlement still looks better than entirely ignoring it, though.

There’s even a psychological reason to pay off old debts, in my opinion. It takes a certain mindset to get into debt. As you rebuild your finances, you’ve over come that mindset and focused on more positive things in your life. But having old debt hanging there in the background can lead some people back to that old mindset: they think, ‘Hey, I got away with it before. There are plenty of ways out if I want to go back to that lifestyle.’ But knowing you stood up and took care of that debt can positively reinforce your new approach to money.

I advise thinking long and hard before writing a debt off as ‘too old.’ In the long run, it’s worth your while to make the effort to pay it off. It may seem overwhelming, on top of your other bills. If a debt is that old, though, your creditor may be willing to make a deal. He may be willing to settle for far less that what you actually owe — perhaps just the actual amount you originally charged rather than all the accumulated interest. Or perhaps he’ll accept small payments over the course of time. You won’t know until you actually contact your creditor and offer to work things out.

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