I have often heard that since older accounts don't affect your score as much as newer ones, that paying off old debts that have been neglected will actually initially make your score worse since these bad debts become current due to recent activity. I know that paying these off will obviously help in the long term, but will the score actually get worse before it gets better? FYI...the particular debts are credit card debts that were either charged off or in the hands of collection agencies. Nothing has been paid on them in about 4-5 years (long story how it got to that point), but now I am ready to start catching up.

I believe you can challenge the reset by contacting the credit bureaus. The 7-year period begins on the date your debt went into collection, not on the date of last activity. If you challenge, they will correctly remove it 7 years from origination.

I'm not sure what your score will be in the interim, but I wouldn't let them start the 7 years over again!

I've been there myself not too long ago.
Any damage that's done to your credit reports will take time to recover. But to pay on accounts this old is definitely not worth it. Paying these off now will force your score to drop, as it makes the activity look more current. It took 2 years for my score to get back into the low to mid-600's for doing that.
The aged debts are not impacting your credit score as they once were. Besides, they should drop off your credit reports in 2-3 yrs anyway. So, unless you can get the creditors to agree to delete the tradelines as part of the payoff agreement (Get this in writing), don't bother.
BTW, neither making a payment nor reselling the debt, restarts the 7yr. reporting period.
The 7yrs. begins on the date when the debt becomes delinquent, never brought current, which led to collection or charge-off.

When an account is "charged off" it's the same as the creditor "cancelling" the debt. In other words they decided they weren't going to get the money from you so they hit you with one last BIG ding (the charge-off status) and then write the debt off.

If you begin making payments to them they will probably NOT report them to the bureas. Why? Creditors pay a fee to list something on a persons report. You're not worth the fee to them anymore since you aren't paying them interest on the accounts AND you'll probably never get a credit card from them again (or at least for a long time).

So by paying them off, you might be soothing your conscience, but once the debt is paid off you're probably going to have to "dispute" it and provide proof of payoff to the credit bureaus to get the "paid" status put on. Whereas if you just wait it out after 7 years the item will drop off your credit - and if it doesn't you can dispute it and have it removed because it's too old to be on your report.

As for credit collection agencies. The creditors routinely "sell" the outstanding debts to these guys for pennies on the dollar. Then the company tries to convince you to pay up.

As long as you have NOT paid the collection agency you are safe from them (if the creditor has put "charged off" on the account on your credit). DO NOT pay them one penny!

Once you pay them you are in effect, opening up a "new debt" and they have the right to ding your credit if you stop paying them. If you don't pay them (and the account has been charged off) they can't do anything to your credit.

If you want more information about how credit scores work and what you can do to fix your credit you can visit my site here:

http://www.1-800badcredit.com/credit-score.html

If they are that old, and you are going to pay them off get it in writing from the companies that they will remove them from your credit report once paid, or else yes they will reset, be marked satisfied and the 7 year clock will start up again.