I received an offer from a collection agency for an old debt. The collection agency offered 4 options. To pay $10 a month until the debt is settled. The other three options are to settle for less then the amount owed, but I am worried this will have a negative impact on my credit more then it already has. Should I pay the whole thing or settle for less?
If the amount of debt forgiven is less than $600 then the creditor will most likely not send the IRS a 1099-C and report the forgiven debt as income that you would be taxed on.
It does not sound like this is a high balance debt. In that case, if you have the cash on hand to make a lump-sum settlement and the collection company has given you the offer in writing, you might want to consider that option. Just be sure to send your payment by traceable means and keep a receipt of the payment along with the settlement letter as proof that the debt was paid according to the mutually agreed upon terms.
These debts can surface again in the future and a collector might state that the deal was never agreed to or you never paid the debt in full.
As a matter of simply personal preference, if the debt is affordable to pay in full, that is always my preferred recommendation.
At this point the damage has been done to the credit report so closing the debt by paying it off will only begin to improve your credit score.