When creditors are offering to settle for half the amount owed, what are the pros and cons?

Question

I am in a huge amount of debt probably $50,000. All of it is in collections and I'm finally in a position to start paying these off. I have gotten many offers to settle some of my debt with the collectors and only pay 40% to 60% of what I owe. The rest I was planning on using a debt consolidation company for. I just want to know what are the pros and cons of doing this. Thanks for all of your help....

Answer 1

"You can't go wrong paying your bill...."?  Oh yeah?  Let me count the ways.

1) Unless you can convince the collection agency to delete the debt from your credit report, paying it doesn't help you one bit.  It will show "paid" but all of the negative info like collections and charge off's will still be there....it's still a derogatory item on your report.

2) Unless you get IN WRITING a statement that your payment constitutes "paid in full" with "no further obligations" on the debt, they can (and will) sell off the remaining balance to another collection agency, who will continue to try and collect from you.  Be VERY careful of the wording of this letter!!!!

3) The portion of the debt that is excused will be reported to the IRS on a 1099-c form, meaning you will have to take the excused portion of this debt as income on your taxes.  Again, be sure you get IN WRITING that they will eat the loss and not file with the IRS.

How old are these debts?  If they are over 4-6 years old they may be out of the Statute of Limitations timeframe, and they can not legally collect on them or sue you in court.  That being the case, why are you messing around paying them?

Answer 2

The pro is that you don't have to pay as much as you initially owed (yipee).

The con is that lenders see that you were not able to fulfill your obligation and see that as a future situation and may look less favorably on you. Even though paying off the entire amount can be pricey it will show them that you fulfilled your obligation at long last.

Answer 3

the pro is the fact that you are paying the debt off and not accumulating any late fees or over credit fees. The only problem i see is that it puts a negative affect on your credit report because you settled on your account. I myself am in the same situation. I also heard that several years down the road it can haunt you because they sell of the remaining amount that you never paid to someone else. Just keep documents and ask for letters in detail on the agreement. so you have backup in the future. Good Luck.

Answer 4

I personally dont think there are any cons, you can never go wrong by paying off debt and if they are willing to settle take it, maybe I would just ask to see if they will settle and agree to delete instead of just updating it to a zero balance, some agencies do and then they will delete it from your credit file and that's what you want!!! I settled to delete with three companies and they all did it and deleted off my credit file and I finally got approved for a house because of it!

Answer 5

Pros:

You get out from underneath $25,000 of this debt.

You don't have to worry about getting sued for the remaining amount owed

Cons:

You have a "settled" notation on your credit reports.

Your credit doesn't improve.

That is a lot of money. You might be able to negotiate with them to mark the account as "paid" rather than "settled"...or just ask them to remove the account entirely from your reports.

But for that much money, I'd take a "settled" notation and live with it to avoid the possibility of a judgment.