How can you eliminate zombie debt?

Receiving a letter stating that you still owe a debt you thought you had settled can be disconcerting and even frightening. This is known as "zombie debt," and it can arise due to various reasons.

Fortunately, there are ways to handle zombie debt and in some cases, you may not have to pay any additional amount. CNBC Select explains what zombie debt is and how to deal with it.

What we’ll cover

What is zombie debt?

Any debt that was previously settled or unknown and is now being collected on is referred to as "zombie" debt.

Settled debts may disappear from your credit report after seven years, but errors can occur when creditors sell debt to collectors, resulting in resolved debts being mistakenly reported as unsettled. Additionally, forgetting about an old line of credit that has been sitting on your credit report without payment can lead to the creation of zombie debt.

Zombie debt can occur when you become a victim of fraud or identity theft, and a scammer borrows money in your name without your knowledge.

What should you do to resolve zombie debt?

To minimize the risk of overlooking a debt, make it a habit to regularly check your credit report for any negative items.

Your credit report will reveal the lines of credit you have open and those that have been closed. If something appears unfamiliar, promptly investigate to ensure a fraudster hasn't opened any accounts under your name.

Experian offers a credit monitoring service that allows you to monitor any suspicious activities on your credit report. The service sends alerts when it detects any potential fraudulent activities, and you can submit disputes for any inaccuracies on your credit report through the platform.

If someone is attempting to recover undead debt from you, follow these steps:

• To validate the legitimacy of the debt, request a debt validation letter from the debt collector. This letter will confirm that you owe the debt collector money and will provide details such as the amount owed and the original creditor. Verify the debt by comparing the information in the letter with your own records in your credit report.
• If you have resolved a legitimate zombie debt, you can write a letter to the collections agency to request that they cease contacting you, as required by the Fair Debt Collections Practices Act.
• If you believe you never owed the zombie debt, you should write a letter to the collector disputing its validity. The collector must stop contacting you until they can prove the debt is yours. However, you must act quickly, within 30 days of their initial contact, or they will assume it is legitimate.

If you have a zombie debt that is both legitimate and still requires payment, you may want to negotiate a settlement or payment plan with your creditors. You can do this on your own or with the help of a debt relief company. However, be cautious and ensure you work with a legitimate organization, as the debt relief industry has its share of scams.

Debt relief services come with a fee, but you can compare costs before committing to a service. CNBC Select ranked New Era Debt Solutions as the best overall debt relief company due to its relatively lower fees compared to other debt relief companies (New Era Debt Solutions charges a fee equivalent to 14%-23% of the enrolled original debt amount).

Bottom line

Being sent a letter for unpaid debt from the past can be frightening, but don't let it haunt you forever. Monitoring your credit report regularly is crucial to staying informed about what you owe and whether any outstanding debt is actually yours.

Why trust CNBC Select?

Our goal at CNBC Select is to deliver top-notch service journalism and in-depth consumer advice to our readers, enabling them to make well-informed decisions when it comes to their finances. Each article is the result of thorough reporting by our team of experienced writers and editors, who possess extensive knowledge of credit monitoring products. At CNBC Select, we are committed to maintaining our journalistic standards and ethics, even though we earn a commission from our affiliate partners on many offers and links.

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