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Should I pay in full, even after a debt settlement?

By Erica Sandberg
Published: April 23, 2014

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
Hi, back during the credit crisis, I had a few credit cards that I settled for less than the full amount owed due to losing my job. It's now been almost five years and of course the damage is still felt on my credit report. Is it possible to call up the credit card companies and offer to pay the full amount (and maybe some interest for the five years)? Would they change how it was reported to the credit reporting agencies then? Or is this not possible since I settled for less than full? Thanks for your help! -- Matt 

Answer Dear Matt,
Sometimes you've just got to let the past drift away and move on with your life. This is one of those times. I'm glad that you were able to resolve your money troubles when they were haunting you, and you should be too.

The debts that you settled were probably sold to collection agencies, so were no longer the property of your original credit issuers. Because of this, you were probably experiencing some unpleasant communications from them, such as demanding phone calls and letters, and maybe even dire warnings of lawsuits. Yet after agreeing to pay less than you owed, then sending the final check, I bet you slept better and had fewer stressful waking moments. So not only did you get a nice financial break, but you were able relax.

With the good, though, came the bad.

Instead of the collection agency informing the credit bureaus that you paid the entire debt -- because you didn't -- they made a note that you settled instead. That fact will be evident on your reports for a total of seven years. Additionally, since all financial and public record data that's listed on a credit report is factored into a credit score, that too has been adversely impacted, although the damage diminishes over time.

So can you go back to your original credit card companies and make amends? No. They won't accept your money now. When the collectors took your delinquent debt off their hands, that was the end of their relationship with you, at least for those particular accounts.

If you want your credit reports to look better immediately, you can try to appeal to the collection agencies you worked with. You may ask that they accept the portion of the debt that they forgave. They might accept your offer -- after all, who doesn't want free money? If you go that route, though, do it on paper (not just over the phone). Be clear that in exchange for the cash, they must send a notice of the zero balance to the credit reporting agencies. After they do, your reports would look better and your scores will rise.

Then again, although I think it is noble of you to repay exactly what you charged, I also believe that you'd be a bit foolish to do so at this juncture. Whatever damage your debt settlement has been causing to your credit rating is nearly over. Let it go.

Rather than going in reverse, refocus your efforts to forward motion. Change the present and future. Get a new credit card (or use one that's open), and charge responsibly. Positive borrowing and repaying activity will be listed on your reports, and will drown out the dusty old dings. In a couple of years all that remains will be the great stuff. And as long as you keep those accounts alive and well, they will work in your favor indefinitely.

See related: Despite settlement, repayment demands surface, What debt settlement is, how it affects credit scores

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

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