Does settling a debt by paying a percentage of the total affect your credit?

Question

Or is it pointless to settle this debt. It is 3000 dollars and 5 years old. The SOL in my state is 6 years, and I'm considering paying it because i need to help my credit. I cant get accepted for anything because of this. So my question; if i pay it, am I going to help my credit, or should I just let it be?

Answer 1

The payment will be reflected on your credit.  When a merchant looks at your record, they will see:

That this was a debt that went into collections

That you took your time to pay

That in order to get any monies out of you the original agent decided take a loss.

Keep in mind as well, that settling this debt will keep it on your record for another 6 years.  Unless you make some sort of agreement with the collector.  Paying it is going to "renew" the account.  Try to get an agreement with the collecting agency about clearing your record or not renewing the account after the current time has lapsed.  

Answer 2

The above poster is incorrect.  Paying a bad debt does not affect your FICO score at all.  The negative tradeline will update to say "settled" (if you settled for less, which looks just as bad to potential lenders as if it were unpaid) or "Paid" if the amount is paid in full.  These statements are merely comments added by the collection agency.  They do not alter the tradeline or the negative score it gives you.

Paying or settling, however, will NOT restart the SOL in your state or any state.  If you do choose to settle make sure that you negotiate a "pay for delete" and that the collection agency agrees to not sell the remaining balance to another collection agency (they WiLL do this if you settle and don't get it in writing).  If you are negotiating a pay for delete the object is that you pay them and they delete the tradeline.  The best time to do this is at the end of the month when the reps are trying to meet their quotas.  Do it over the phone and keep calling until you get a rep willing to work with you.  Make sure they FAX you the agreements (signed) prior to your payment.  

In your case I would wait it out.  If you only have another year until the debt drops off your credit report forever (and no one can reinsert it once the 7 years are up) there really is no point in paying it unless it is a small debt and you can pay it in full.  Even if you pay it in full get it in writing that its paid in full.  Collection agencies are dangerous.  Tread with care.

Answer 3

Speak to a debt counselor over the phone or in your area without cost or obligation and try to discuss it candidly with details about your goals.

After 6 years have elapsed, the collector will sell the debt at a reduced rate to the collection agency that makes it's living harassing people, many times in breach of the local laws.  

It depends on your individual goal and situation.  If you let it be, it might roll off in 1 year, and paying it in any way will be like waking up an old beast.  Or, it will accumulate interest and the collection agency will hound you for it.  It might not roll off in 1 year - depends on your state.

If you pay it, I think the other person is right that it will renew the debt to make it worse unless you pay it off in full.  

I believe the 6 years will start over after 1 year from now - not after you pay it.  

A debt consolidator (many on tv) can explain some of the details better than I can, just be sure you mention which state you are in and the time frames.

Answer 4

Paying it always helps, but the bad info will stay in your credit report for seven years.

Answer 5

Paying off unpaid collections will help your credit score.  If your are financially solvent you may get a 1099 however.  You need to speak with your accountant on this.