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Should I Settle a Collection or Pay in Full?

Sarah Edwards | April 11, 2024

Sarah Edwards
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

Hannah Locklear
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

George Simons
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.

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.

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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.

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

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

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:

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