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Question By
spen4

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Settle debt or pay in full
I defaulted on a student loan with around $18000 left on it. Before they sent it off to collections (or sued me for the remainder), I agreed to pay them $400 a month until the entire debt was paid. The account is reported as in charge off until I am finished paying. Obviously my credit score has taken a huge hit. I have not missed a single payment since (although per the agreement these payments aren't reported, the account balance just goes down).
My financial situation has become considerably better in the 2+ Years I have been paying this, and I would like to buy a home soon. I plan on paying the remaining $8000 off in less than a year. I could settle the debt for about $6000.
Now to the question. Should I pay the entire $8000, or save myself $2000 and pay the settlement number. This is a number the lender has offered without my prompting. I can afford to pay off in full, but obviously saving $2000 is a good thing. Will the settlement hurt my credit score?

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It is accurate that once a collection has hit your credit score, paying it off does not remove it. However, if you settle with a creditor, it will show up as settled on your credit report, which will make it extensibly more difficult to get it removed by challenging the debt with the Beuroes later. If you pay the debt in full, you can often send letters out to the beuroes asking for the collection to be removed from your report. 

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Well I would ask of they would consider a "Pay For Delete".  Where you pay in full and they delete the account off your credit report.  If they will not do that I would take the settlement.  The damage has been done and it's on your credit report already so there would be no reason to not save the $2000....

Reply by
spen4

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I've also read that having a settlement rather than a paid in full is bad for a credit report.  Will a settlement do more damage to my report going forward?

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Draw backs to debt settlement.

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Talk to your tax advisor before settling as any forgiven amount could be considered income for tax purposes and talk to a mortgage specialist about how the debt settlement could affect your approval.  Some times banks will decline a mortgage loan if they see a settlement on your record regardless of score.

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Settle?

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I just finished my 6th credit card settlement. If you start low and haggle they will settle for approx 50-55% of the balance if paid in a lump sum.

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if your only two options are settle the debt or pay it full, i'd pay it in full. settled debts will impact your score more so than those paid in full. now, as some others have said, you may want to negotiate a pay for delete, this is your best option for maximizing your credit score. 

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