Q: I’m currently paying off a debt that a collection agency bought from my creditor. Is it better to pay off a debt in full or settle for a lesser amount if it is offered to you?
A: It’s always better for your credit history and credit score to pay your debt in full. If your creditor offers you a deal by paying a portion of what you owe, make sure the creditor will agree to report that deal as “paid in full” or “paid as agreed” on your credit history.
But once a debt goes to collection, the damage has been done to your credit history and score. So, settling with the collection agency for a lesser amount may not have a negative impact on your credit history and score – in fact, it might work in your favor.
If you settle for a lesser amount, and you and the collection agency agree (in writing) that the debt will be reported as “paid in full” or “paid as agreed,” and that happens years sooner than you would have otherwise paid off the debt, you’ll start improving your credit more quickly because time is going by.
The timing issue is something to consider.