Facts

• Settling in full differs from a traditional debt settlement in that the creditor agrees not to write off the unpaid balance on its taxes or sell it to a collection agency. This prevents you from having to pay taxes on the portion or the debt you left unpaid or suffer additional credit damage from a new collection account appearing on your credit report.
  
  

Significance

• Settling old debts doesn't improve your credit score unless your creditor agrees to delete or modify its original report to the credit bureaus in exchange for your payment. Although settling an old debt doesn't help your credit, it stops debt collection calls and may give you peace of mind.
  
  

Considerations

• If you settle a debt that is late but has yet to be charged off by the creditor, such as a delinquent credit card debt, the settlement will negatively impact your credit rating as soon as the creditor reports the settlement to the credit bureaus. When dealing with an original creditor, negotiating a payment plan for the full amount is always a better option.