Worked with a debt settlement company, but now have the $ to pay full amount. Which is better?

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Several years ago, I was under-employed and drowning in credit card debt. I chose to go the debt settlement route. I was never comfortable with the process. Recently, I have come into a sum of money which can eliminate that full amount of debt with no settlements. Since my credit score is fairly low already, should I take advantage of the relationship with the debt settlement company and pay less? Or would it be better for me, and my credit, to pay off the full amount?

  1. Reply
    June 26, 2011 at 8:13 am

    I would pay off all the debt, and leave the settlement company out of it. The reason I say that is, if you settled for much less than the amounts owed, sooner or later, you are going to get a 1099 from them reporting what they let you off for, as unearned income, and you are going to be expected to pay federal income tax on that unpaid amount.

  2. Reply
    June 26, 2011 at 8:39 am

    I don’t believe you have a choice here. Once you go into settlement, you and the settlement company along with your creditor have come to an agreement that you will pay less than you owe. If you already have been paying ( the settlement company ) for this, than you should go on and finish with the settlement company. You calling the credit card company and telling them you can pay what you originally owed will not change anything. As of now, your agreement is with the settlement company. Pay off the settlement company and find out what the next step is, they know the process. You should ask for a letter of “paid in full” from the creditor once you have paid off. This should help you credit as it will not show the debt settlement. Talk to the settlement company and ask any questions you have, just don’t tell them how much money you have now, and pay off what was agreed on. After that obtain a copy of your credit report to make sure it was reported correctly. It should show no defaults. Read up on the link below. Best of luck.

  3. Reply
    June 26, 2011 at 8:47 am

    You should be able to terminate your debt settlement contract and pay on your own. You will not be able to get the money you have paid the company already returned though (usually, your first two or three payments go directly into the debt settlement company’s pockets instead of accruing to pay off your debts).

    Check the terms of your contract and if you can get out from under it, do, then pay off your debts with the original creditors if at all possible, or their collection agencies (second best) and try to secure a “pay for delete” in writing beforehand if you can. That way, they will remove their report from the credit bureaus.

  4. Reply
    My Take on It
    June 26, 2011 at 9:26 am

    “Several years ago…”
    How many years old is this debt?
    If it is over 4 years old, you would do better to leave it alone

  5. Reply
    Rodolfo D
    June 26, 2011 at 10:18 am

    Your credit score is already ruined, so we need to think the best way to get out of debt and begin recovering your credit.
    If you have a relation with the settlement co. and they are paying, or they payed debt for you already, the best option is pay them the amount you own in your settlement program and let them finish their job. This way you end settlement and all your debts are done.
    The other way is cancel the settlement program and deal by yourself with creditors. This option could be cheaper but involves your time and hassle.
    Good luck.

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