Settle In Full vs Paid In Full: What's the Difference?

Michael Collins
Dec 23, 2021

If you have outstanding debt, your main two options are settling in full and paying in full. However, the difference between these two can be confusing. You might be asking yourself, "Is settle in full the same as paid in full? Should I pay in full or settle instead?"

Paying in full means paying the total amount of your debt. Settling in full means coming to an agreement with your creditor or collection agency on an updated payment plan.

While this may seem simple, there are nuances to how lenders look at the two on your credit report. Keep reading to learn the important differences between the two.

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What’s the Difference Between Settle in Full vs Paid in Full?

If you have monthly payments on your accounts that you have missed, you of course want to pay them if you are able. If you aren't able to pay, these are termed as late payments with your lender.

If late payments are over 6 months due, your lender or credit card company may consider your debt "charged off," or delinquent, which can hurt your credit score and remain on your credit history for many years.

Settling in full and paying in full are two ways of fixing a loan or credit card account that has missed payments on it. 

Settling in full and paying in full both result in your loan balance becoming 0$, which lets you close your account. However, these two are not the same. 

Paid in Full

Paying in full means paying the full balance of your remaining debt. For example, if you have $300 remaining in credit card debt, paying in full would mean paying the whole $300 balance as well as any late fees on the account. This then brings your account to good standing.  

Having debt looming over you is never fun, and you may pay a high-interest rate on your debt if it is past due. To fix this, many borrowers simply pay the full amount of their debt by making one lump sum payment. 

However, this isn't possible for every borrower and some borrowers may need to settle in full instead. 

Settled in Full

If you live paycheck to paycheck or are simply going through a tough time, paying your balance off in full might not be an option for you. If this is the case, settling in full is another option. 

Settling in full means coming to an agreement with your creditor or debt collector on a debt management plan that may allow you to pay less than the original balance. 

Lenders and debt collection agencies would rather you pay some of your debt back rather than none. As such, they may offer a debt settlement to incentivize you to pay back some of your balance. 

This is usually through a payment plan or paying a reduced lump sum to settle the debt.

Is Settled in Full the Same As Paid In Full on a Credit Report?

Balances settled in full and paid in full do not show up the same on credit reports. Credit bureaus like Experian, Equifax, and TransUnion all treat the two differently, and they can have different effects on your credit report. 

Paid In Full

Unsurprisingly, lenders would rather borrowers pay their entire balance off instead of settling and paying less than the full amount. As such, credit bureaus reward those who pay their loans and credit card balances in full. 

On your credit report, paying in full will show that you made the payment necessary to pay off your entire loan. 

This brings your account to good standing, which looks good on your credit report. This will also help to improve your FICO credit score since "payment history" makes up 35% of your entire score. 

Settled in Full

For lenders, debt settlement is not as favorable. As a result, it is not exactly ideal for your credit report or credit score. 

Having a "settled in full" account on your credit report shows lenders that you have a history of not paying your entire loan or credit card back. 

While it is better than completely defaulting/not paying on your account, it still does not look great. As such, it can lower your credit score but will be removed from your credit report after 7 years. 

What Happens If I Don’t Pay At All?

If you do not pay or settle your debt in full, there can be some harsh consequences. If you fail to pay and cannot come to a resolution for your account, it may become marked as charged-off or defaulted. 

Having an account that isn't paid does not look good on your credit account, as it shows potential future lenders and credit card companies that you have a history of not paying your debts back. 

As a result, your credit score will take a large hit and the effects will last about 7 years. If you don't settle or pay in full, you may find that lenders will not lend you money again.

Should I Pay in Full or Settle?

When deciding to pay in full vs settling in full, there are some things to consider. 

For example, be aware that settling in full may have a negative impact on your credit score. However, while paying in full may be better for your credit, you may not have the financial means to do it. And in the long run, settling is better than leaving the account in default.

In the end, the final decision of whether to pay your debt in full or settle it in full must be up to you. No one knows your current financial standing better than you. 

Only you can look at your debt, income, and other expenses and know whether it makes sense to pay your debt in full or to settle it. 

Here are some things to consider when making that decision:

Paying in Full

  • Better for your credit score/credit report
  • Can be extremely difficult or impossible to do depending on your financial situation

Settling in Full

  • Can hurt your credit score 
  • Better than defaulting on your loan 
  • Allows you to not pay the full amount 

Closing

If you have a debt that is late and is at risk of going into default, you have some options to prevent that from happening. 

Settling your debt in full or paying your debt in full are two options to help. 

While they both have their respective positive and negative consequences, only you can know which is best for you. 

More Debt Repayment Resources

Struggling with paying off debt, managing your expenses, are considering a debt settlement company, or have any other personal finance questions? 

Here are some great resources from the Possible Finance blog:

Michael Collins

Michael has a passion for writing and has since brought that passion to Possible. He enjoys reading everything there is to know about film, sports, and finance. His studies in college allow him to be on the forefront of business knowledge so he can better inform his readers.

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