The Kitchen Table

Settling a Debt for Less Than You Owe

  • October 01, 2018

The status of your loan/credit accounts will show on your credit report. For example it will show whether your payments have been made on time, if any were paid late, or if an account is closed. When you fall behind on an account and you haven’t made payments for quite some time, or you are risking legal action, you might be tempted to “settle” your debt. The word “settled” (in the world of finance) means that a lender agrees to accept a final repayment amount that is less than the full balance of your original debt. But debt settlement WILL hurt your credit score. Anytime you do not repay an account in full or as agreed in the original contract will have a negative effect on your credit score. How much depends on your individual credit profile. The status of your account will change from “past due” to “settled” or “settled for less than full balance”


Debt settlement information will remain on your credit report for seven years. But, if you are drowning in debt and you are trying to get above water it might be the right choice for you and your lender. As with any credit set back, it will take time to rebuilding your credit score. The same is true after a settled debt. Keep in mind that the goal of your settlement was to get rid of some of your debt. This is a temporary sacrifice to your credit score, in an attempt to help improve your overall finances and as you make payments on your current loans your score will improve over time.


*Employees of LPI Loans and our affiliates are not attorneys and LPI Loans DOES NOT provide any legal advice and users of this web site should consult with their own attorney for legal advice.

Thank you for taking a chance on me!
Madeline L. IA