Should I Settle a Collection or Pay in Full? (2024)

Table of Contents
Settle with SoloSettle Paying off debt altogether has benefits How do you settle a debt? Paying a debt in full is better than settling a debt Should I pay a charge-off in full or settle? What is the difference between settled vs paid in full? Is it better to pay collections in full or settle? What is SoloSettle? Should I pay a charge-off in full or settle? How to Answer a Summons for debt collection in all 50 states Guides on how to resolve debt with every debt collector Resolve your debt with your creditor Settle your medical debt Guides on arbitration Stop calls from debt collectors Federal debt collection laws can protect you Get debt relief in your state Debt collection laws in all 50 states Statute of limitations on debt state guides Check the status of your court case How to stop wage garnishment in your state Other wage garnishment resources How to settle a debt in your state How to settle with every debt collector Other debt settlement resources Personal loan and debt relief reviews How to repair and improve your credit score How to resolve student loan debt Civil law legal definitions Get answers to these FAQs on debt collection How-to debt guides Learn more with these additional debt resources Not sued yet? Use our Debt Validation Letter. It only takes 15 minutes. And 50% of our customers' cases have been dismissed in the past. FAQs

Sarah Edwards | April 11, 2024

Should I Settle a Collection or Pay in Full? (1)

Legal Expert
Sarah Edwards, BS

Sarah Harris is a professional researcher and writer specializing in legal content. An Emerson College alumna, she holds a Bachelor of Science in Communication from the prestigious Boston institution.

Edited by Hannah Locklear

Should I Settle a Collection or Pay in Full? (2)

Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Fact-checked by George Simons, JD/MBA

Should I Settle a Collection or Pay in Full? (3)

Co-Founder of SoloSuit
George Simons, JD/MBA

George Simons is the co-founder and CEO of SoloSuit. He has helped Americans protect over $1 billion from predatory debt lawsuits. George graduated from BYU Law school in 2020 with a JD/MBA. In his spare time, George likes to cook, because he likes to eat.

Should I Settle a Collection or Pay in Full? (4)

Summary: Ultimately, it’s better to pay off a debt in full than settle. This will look better on your credit report and help you avoid a lawsuit. If you can’t afford to pay off your debt fully, debt settlement is still a good option. Use SoloSettle to settle your debt on your own and regain your financial footing.

Do you have an outstanding debt with a creditor that you’re unsure how to handle? Sometimes, people fall behind on their regular payments due to job loss or other life situations, and they’re not sure how to resolve the problem. They may be in so much debt that their attempts to overcome it are futile.

When consumers stop making payments on their debt, their creditor will typically send their account to collections. Collections may be an in-house department with the original creditor or an outside debt collection service.

If your account is in collections, you may be unsure how to handle it. Should you pay the debt off entirely or attempt to settle it? Both options have specific benefits and drawbacks.

Sued for debt? Can't afford to pay in full? Consider debt settlement.


Paying off debt altogether has benefits

Paying off a debt in its entirety stops all collection calls for good. Debt collectors and creditors have no reason to hound you for payment when there is no outstanding obligation. You can stop putting your phone on silent or worrying about the next collection email from a collection agency and live your life free from interference from the debt collector.

If you plan on purchasing a home, applying for an apartment, or shopping for a credit card anytime soon, you’ll want to eliminate your accounts in collections. Most lenders will refuse to approve your application until you resolve your outstanding and overdue bills.

Sometimes, employers may deny you a job if you have an overdue account in collections. No one wants to be denied employment because of their credit; when you resolve the issue, you won’t have to worry about losing a job you’d love to have.

When you pay off your debts in collection, they’ll be notated in your credit report as fully paid. A fully paid collection is better than one you settled for less than you owe. Over time, the collections account will make less difference to your credit score and will drop off entirely after seven years.

Finally, paying off a debt can be a tremendous relief to your mental health. Knowing that you have unpaid debts can be a source of anxiety and depression. Eliminating them can relieve you from constant worry about your finances.

How do you settle a debt?

While paying off the debt entirely is generally better than settling it, sometimes it’s impossible. Your debt may be too much to manage, or you may not ultimately have the money to pay it off.

To settle a debt, you’ll need to come to an arrangement with your creditor. Usually, they’ll only accept a settlement if you can afford to pay it lump-sum or spaced out over a few months. Determine what you can pay, and start negotiating with your creditor.

You’ll want to start with at least 50% of the debt’s value. For instance, if you owe $1,000, you’ll offer $500. The creditor will consider your offer and decide whether they want to counter with an offer of their own.

Once you reach a settlement agreement, you’ll want to ensure it’s in writing. If you don’t get the deal in writing, the creditor may continue to pursue you for the remainder of the debt, despite your negotiation efforts.

Let’s take a look at an example.

Example: Ruth is being sued by her credit card company after falling seriously behind on her payments. She uses SoloSuit to draft and file an Answer to the lawsuit, giving her time to figure out how to reach a debt settlement agreement with the company. Next, Ruth figures out how much she can afford to pay off in a lump-sum payment. She uses SoloSettle to send a settlement offer, and after a few rounds of negotiations, Ruth reaches an agreement with the creditor at 70% of the debt’s original amount. Ruth saves some money and feels empowered to get back on track financially.


Check out this video to learn more about how to settle your debt:

Paying a debt in full is better than settling a debt

No, settling a debt isn’t better than paying it in full. Ideally, you’ll want to fully satisfy the obligation to maintain or improve your credit score and avoid potential legal troubles.

However, settling it can protect you from a potential lawsuit if you can’t afford to pay off the debt. You’ll also save money. Settling the debt eliminates future interest and reduces the amount you’ll repay to the lender.

When you settle a debt, the creditor or debt collector will typically report the account as settled for less than what you owed. Future creditors may see you as a potential risk since you didn’t wholly abide by the terms of their agreement, even if the account is no longer in collections.

You may also face taxes on your settled debt. Creditors will send you a 1099-C, notifying you that you must report the amount you saved as income on your tax return. The taxes you pay will likely eat into any savings from the debt, making it less beneficial than simply paying it in full.

Generally, you should pay off any accounts currently in collections in full. Doing so stops them from having a further impact on your credit score and can lift a massive burden from your shoulders.

Now, before we sign off, let’s look at a few FAQs about debt settlement.

Should I pay a charge-off in full or settle?

You should pay a charge-off in full, if you can. If you are not in a position to afford the full payment, debt settlement can be a good option to help you resolve a debt.

Learn more: Debt Settlement Pros and Cons

What is the difference between settled vs paid in full?

A settled account means the creditor or debt collector settled for less than the full amount of debt that was originally owed. If an account is paid in full, it means the full debt amount, plus interest and fees, was paid off.

Is it better to pay collections in full or settle?

Debt collectors, especially debt buyers, are usually more likely to settle debt for less. So it may be better for you to discuss settlement options with collections, but be aware that debt settlement will impact your credit score. Paying in full is usually the best option, but not everyone can afford to do that.

Can't afford to pay in full? Use SoloSettle to settle your debt for less.

What is SoloSettle?

SoloSettle makes it easier to settle debt.

The SoloSettle software, which is powered by SoloSuit, assists you in sending and receiving debt settlement offers, making the settlement negotiating process more streamlined. You won't have to speak with collectors directly, and when you come to a settlement agreement, SoloSettle will help process you settlement payment so you keep your financial information private and out of collectors' hands.

See Also
Should I Pay the Original Creditor or the Debt Collector?

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

Should I Settle a Collection or Pay in Full? (5)

>>Read the NPR story on SoloSuit. (We can help you in all 50 states.)

Should I Settle a Collection or Pay in Full? (6)

Should I pay a charge-off in full or settle?

You should pay a charge-off in full if you have the means to do so. However, most people who are dealing with debt collection don't have the funds to pay a charge-off, otherwise they would have done it already. So, if you can't afford to pay your charged-off debt, debt settlement is a great option to consider.

We wanted to learn more about how to negotiate debt settlement, so we asked a debt lawyer to share some tips and tricks on how to settle with creditors and debt collectors. Here are some tips on debt settlement from an attorney:

  • Show Hardship and Other Debts: Demonstrate financial struggles and other obligations, like other debts or inability to garnish Social Security, to encourage settlement.
  • Avoid Lowball Offers: Propose realistic settlement amounts; too low offers are likely to be rejected.
  • Know Who To Call: When negotiating debt settlement, you will typically contact the debt law firm, not the creditor or debt collector suing. The attorney acts as a middleman between the two parties.
  • Be Prepared for Counteroffers: Expect negotiation and be ready to adjust your offer accordingly.
  • Provide Accurate Financial Information: Be truthful about your financial situation, as creditors often have detailed information about you.

Watch the full interview on how to settle debt with attorney, John Skiba, below:

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Guides on how to resolve debt with every debt collector

Are you being sued by a debt collector? We’re making guides on how to resolve debt with each one.

Resolve your debt with your creditor

Some creditors, banks, and lenders have an internal collections department. If they come after you for a debt, Solosuit can still help you respond and resolve the debt. Here’s a list of guides on how to resolve debt with different creditors.

Settle your medical debt

Having a health challenge is stressful, but dealing medical debt on top of it is overwhelming. Here are some resources on how to manage medical debt.

Guides on arbitration

If the thought of going to court stresses you out, you’re not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Stop calls from debt collectors

Do you keep getting calls from an unknown number, only to realize that it’s a debt collector on the other line? If you’ve been called by any of the following numbers, chances are you have collectors coming after you, and we’ll tell you how to stop them.

Federal debt collection laws can protect you

Knowing your rights makes it easier to stand up for your rights. Below, we’ve compiled all our articles on federal debt collection laws that protect you from unfair practices.

Debt collection laws in all 50 states

Debt collection laws vary by state, so we have compiled a guide to each state’s debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Statute of limitations on debt state guides

Like all debt collection laws, the statute of limitations on debt varies by state. So, we wrote a guide on each state’s statutes. Check it out below.

Statute of Limitations on Debt Collection by State (Best Guide)

Check the status of your court case

Don’t have time to go to your local courthouse to check the status of your case? We’ve created a guide on how to check the status of your case in every state, complete with online search tools and court directories.

How to stop wage garnishment in your state

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in all 50 states.

Other wage garnishment resources

How to settle a debt in your state

Debt settlement is one of the most effective ways to resolve a debt and save money. We’ve created a guide on how to settle your debt in all 50 states. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

How to settle with every debt collector

Not sure how to negotiate a debt settlement with a debt collector? We are creating guides to help you know how to start the settlement conversation and increase your chances of coming to an agreement with every debt collector.

Other debt settlement resources

Personal loan and debt relief reviews

We give a factual review of the following debt consolidation, debt settlement, and loan organizations and companies to help you make an informed decision before you take on a debt.

How to repair and improve your credit score

Debt has a big impact on your credit. Below is a list of guides on how to repair and improve your credit, even while managing major debt.

How to resolve student loan debt

Struggling with student debt? SoloSuit’s got you covered. Below are resources on handling student loan debt.

Civil law legal definitions

You can represent yourself in court. Save yourself the time and cost of finding an attorney, and use the following resources to understand legal definitions better and how they may apply to your case.

Get answers to these FAQs on debt collection

How-to debt guides

Learn more with these additional debt resources


Not sued yet?

Use our Debt Validation Letter.


Out Debt Validation Letter is the best way to respond to a collection letter. Many debt collectors will simply give up after receiving it.


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And 50% of our customers' cases have been dismissed in the past.


"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" - Heather

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Should I Settle a Collection or Pay in Full? (2024)

FAQs

Should I Settle a Collection or Pay in Full? ›

Generally, paying your entire balance on a collection account will affect your credit score less than if you pay a lower amount. The latter option will result in a "settled" payment status on your credit report, which could negatively affect your credit score.

Explore More ›
Is it better to pay collections in full or settle? ›

A fully paid collection is better than one you settled for less than you owe. Over time, the collections account will make less difference to your credit score and will drop off entirely after seven years.

View Details ›
Is it better to pay off collections or wait? ›

Paying off collections could increase scores from the latest credit scoring models, but if your lender uses an older version, your score might not change. Regardless of whether it will raise your score quickly, paying off collection accounts is usually a good idea.

View Details ›
Should I dispute a collection or pay it? ›

You should dispute a debt if you believe you don't owe it or the information and amount is incorrect. While you can submit your dispute at any time, sending it in writing within 30 days of receiving a validation notice, which can be your initial communication with the debt collector.

View More ›
How much should you offer a collection agency to settle? ›

“Negotiating with a collection agency can be challenging, but it is vital to reach a fair settlement,” Raymond Quisumbing, a registered financial planner at Bizreport, said. “Offering 25%-50% of the total debt as a lump sum payment may be acceptable.

Discover More ›
Is it better to have a collection removed or paid in full? ›

Pay the bill, even without a pay-for-delete offer.

A collection account paid in full reflects better on your credit report. Plus, newer versions of the FICO and VantageScore credit scoring models only ding your credit for unpaid collections accounts.

Find Out More ›
Does settled in full hurt your credit? ›

Debt settlement, when you pay a creditor less than you owe to close out a debt, will hurt your credit scores, but it's better than ignoring unpaid debt. It's worth exploring alternatives before seeking debt settlement.

Know More ›
Will credit go up after paying off collections? ›

For recent versions of the FICO and VantageScore credit scoring models, paying off a collection account may help improve your scores. According to Experian®, one of the three major credit bureaus, that's because these credit scoring models only penalize unpaid collection accounts.

Show Me More ›
What happens when you pay a collection in full? ›

Paying off a collection account will note the account as "paid" on your credit report, but the effect on your credit depends on the scoring model. Some credit scoring models ignore $0 balance debt collections and treat certain types of debt different from others.

Explore More ›
Should I pay a charge off in full or settle? ›

A paid-in-full status is better for your credit report than a settled status. Future lenders prefer to see that you've paid what you owe in full rather than settling for less. Avoids tax consequences. The IRS may consider forgiven debt as income, and you may have to pay taxes on it.

Find Out More ›

What happens if I pay the original creditor instead of collection? ›

Generally, paying the original creditor rather than a debt collector is better. The creditor has more discretion and flexibility in negotiating payment terms with you. And because that company might see you as a former and possibly future customer, it might be more willing to offer you a deal.

Read On ›
What is the difference between settled in full and paid in full? ›

The main difference between settling in full versus paying in full is that you don't pay your entire balance when you settle. Instead, you pay the agreed-upon amount that you've negotiated with your creditors. Another important difference is how your credit is affected by each strategy.

Keep Reading ›
What is the lowest a creditor will settle for? ›

Depending on the situation, debt settlement offers might range from 10% to 80% of what you owe.

Get More Info ›
Should I pay full amount to collection agency? ›

Calculate the Amount You Can Afford to Pay

Instead of letting the debt collector call the shots, look at your budget to see what you can afford. Then, if possible, call the collector once you have enough money for a lump-sum payment of 30% to 50% of the full balance.

Explore More ›
What is a good debt settlement offer? ›

What Percentage Should You Offer to Settle Debt? Consider starting debt settlement negotiations by offering to pay a lump sum of 25% or 30% of your outstanding balance in exchange for debt forgiveness. However, expect the creditor to counter with a request for a greater amount.

Discover More ›
Will paying a collection in full improve my credit? ›

For some credit scoring models, paying off collection accounts may improve credit scores. FICO® Score 9, FICO Score 10, VantageScore® 3.0 and VantageScore 4.0 credit scoring models penalize unpaid collection accounts. Paying off collection accounts may help improve these scores.

Read The Full Story ›
Is it worth partially settling a debt? ›

You may wonder why creditors accept full and final settlement offers if debts are only partially settled. However, many creditors accept they may never see the total debt owed and agree that getting some of the debt you owe in a one off payment is better than you never paying the full balance anyway.

Learn More Now ›
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