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Is it better to pay off bad debt or to settle it?

It is always better to pay your debt off in full if possible. Although settling an account is typically viewed more favorably than not paying it at all, a status of settled is still considered negative.

Settling a debt means that you have negotiated with the lender, and they have agreed to accept less than the full amount owed as final payment on the account. The account will be reported to the credit bureaus as “settled” or “account paid in full for less than the full balance.”

Any time you don’t repay the full amount owed, it will have a negative effect on credit scores. The “settled” status will remain for seven years from the original delinquency date of the account, or if the account has never been late, it and will stay on your credit report for seven years from the date it was settled.

Alternatively, an account that appears as “paid in full” on your credit report shows potential lenders that you have paid the creditor the full amount that was due. Accounts closed in good standing remain on your credit report for up to 10 years.

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Scoped on: 6/20/2017

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