Debt Aging

Debt aging summary:

• Debt aging tracks how long a debt remains unpaid. It's a way to categorize unpaid debts by their age, typically in 30-day intervals.

• Older debts could be easier to settle, giving the borrower more leverage.

• Unpaid debts typically harm your credit, but the effect fades over time. 

Debt Aging Definition and Meaning

Debt aging refers to how long a debt has gone unpaid. A debt you haven’t paid in 90 days is older than one you haven’t paid in 30 days. 

The longer a debt goes unpaid, the easier it could be to settle. Leaving debts unpaid gives you leverage over creditors and debt collectors. It also impacts your balance and credit score.

No matter how old a debt is, it doesn’t go away. But once a debt's age exceeds your state's statute of limitations, debt collectors no longer have the legal right to pursue you for the debt (but they might try anyway).

More on Debt Aging

Suppose you have $10,000 in credit card debt. You’ve been making payments faithfully until you suddenly lose your job. Now you’re scrambling to cover essentials and can't afford to pay your credit card minimum. 

At first, the credit card company will send reminders. 

• At 30 days, the account is typically reported as late to credit bureaus. 

• Between 90 and 180 days after the last payment, a creditor will probably escalate its efforts: more frequent calls, letters, or forwarding the account to a collections agency. 

• After 180 days, most lenders write off the debt and either sell it to a debt buyer or assign it to a collection agency. Statistically, lenders are less likely to collect the full amount of an older debt. Since the creditor knows they’re unlikely to collect the full amount, they may be open to a settlement offer, especially if you can pay in a lump sum. 

Depending on your financial situation, you might offer to pay $3,000 to $6,000 to settle the debt, and ask the creditor to forgive the rest. If it’s clear that you intended to fully repay the debt but now you can’t, there may be some flexibility.  

Key Attributes of Debt Aging

Debt aging encompasses several factors. How easy it might be to settle a debt usually comes down to some characteristics of the debt:

Debt age. Creditors, collection agencies, and debt collectors sort debt into buckets by age. 30-day debts are treated differently than older debts. After 180 days, a creditor may give up on collecting the debt directly and sell it to a debt collection company.

Possibility of settlement. Old debts are typically easier to settle. Creditors and debt collectors may be more likely to believe you can’t afford to pay the whole balance when you’re way overdue. 

Statute of limitations. The statute of limitations is the amount of time a creditor can sue you for a debt. Once it passes, typically three to six years after you stop paying, collectors lose the right to sue you. If they sue you, however, after the statute of limitations runs out, you could ask the judge to throw out their case. Collectors may be more likely to settle when your debt's age is about to exceed the statute of limitations.

Even after the statute of limitations expires, a debt is still yours. That means debt collectors could contact you and try to get you to pay. They could also try to restart the statute of limitations by asking you to acknowledge the debt or make a partial payment. 

Secured vs. unsecured debt. A secured debt is guaranteed by something valuable that the lender could take and sell if you fail to repay the debt. If you let your car loan go unpaid, expect the lender to repossess the car. An unpaid mortgage would normally lead to foreclosure. You only have a few months before negative consequences kick in on an unpaid secured debt. Secured debts generally aren’t negotiable.

Unsecured debts, like credit cards or medical bills, offer no financial safety net for the lender. These kinds of debts are better candidates for negotiation as they become older. 

Type of debt. Some debts, like federal student loans or recent tax debts, may be harder or even impossible to settle because of legal protections. For example, federal student loans have flexible repayment terms and hardship programs instead. The IRS has powerful collection tools like wage garnishment, making recent tax debt difficult to negotiate.

Debt Aging: a Comprehensive Breakdown

The age of a debt impacts your credit score, a creditor’s right to pursue legal action, and the likelihood that a creditor may be willing to settle the debt. 

Aged debt is more likely to be settled

Creditors typically organize debt into categories or buckets grouped by age to get a better idea of how likely you are to repay the debt. As debts grow older, borrowers are less likely to pay it back. That makes creditors more open to settling for less than what’s owed.

Creditors could charge you interest and fees on unpaid debt

Defaulting on debt could make it grow. 

Creditors charge interest and fees until they write off your debt or sell it to a collection agency—typically around the 180-day mark. When a debt is sold off, buyers and collectors inherit the right to charge the debt’s interest rates and fees as specified in the original agreement. In other words, you could still be charged interest on defaulted debt. 

Aged debt drags down your credit score

Defaulting hurts your credit score. The top factor in credit scoring is payment history. Your score will typically drop around 30 days after you miss a payment. The harm is greater as the unpaid debt becomes older. In other words, a 90-days late account is worse than a 30-days late account. Late payments and collection accounts stay on your credit reports for seven years. 

You can rebuild your credit score after you settle debt or otherwise get rid of it.