Quick Answer: Paying credit card debt in full provides the best credit rebuilding outcome, while debt settlement appears on credit reports for up to seven years. Depending on the debt amount, bankruptcy may be faster and less expensive than settlement, with Chapter 7 completing in around 120 days.
Question:
Dear Steve,
I childishly made some large purchases using my credit, and couldn’t afford to complete the payments on a timely manner. Most of those accounts are closed.
Is it best to pay them off in full or with a settlement payment? Also, paying that amount (full or settlement amount) as a one time full payment or monthly amounts; will either help rebuild my credit?
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Answer:
Dear MonieMoney,
If you wanted to rate which efforts would help you the most, paying the accounts off in full would do the trick.
After that, settling the debt for less than you owe or bankruptcy can fall into the same general bucket.
When you settle a debt for less than the full balance the amount of debt forgiven will be reported as a bad debt and appear on your credit report for up to seven years from the start of the last stretch you went delinquent.
A bankruptcy will close the delinquent debt and a chapter 7 bankruptcy can be reported for up to ten years.
But the length of time it is reported is less important than how aggressively you work to rebuild your credit following either debt settlement or bankruptcy.
Once you settled all your debt debt or received your bankruptcy discharge, the ability to have good credit again is within your reach. Just read this guide.
Depending on how much debt you are talking about, it can be faster and less expensive to file bankruptcy, take what you learned from your mistakes, and start over.
If you want to compare the various get out of debt options then just use my online get out of debt calculator.
As far as I’m concerned, you screwed up, learned from the mistake, and now need to move forward in a rational and logical way. That means not making decisions based on emotion, but fact. You might want to read this and this to help you on your decision path.
Maybe this post will really hit home for you – How to Get Out of Debt. The Honest and Unvarnished Truth.
Know Your Rights: If a debt collector is contacting you, you have legal protections. See the complete list of FDCPA violations collectors commit most often. Use the free Debt Validation Letter Generator to demand proof of the debt, or check this collector’s complaint history with the Scam-O-Meter.
Dealing With Debt? Before you pay a collector, understand all your debt relief options — including ones the collector won’t tell you about. If the debt feels unmanageable, take the 2-minute bankruptcy quiz to see if the math favors a fresh start. Federal Reserve research shows filers recover faster than those who don’t file.
Asked question about getting out of credit card debt.