Paid in Full versus Paid Off Less than Full Balance

Ask the Experts: What's the difference between Paid in Full and Paid Off Less than Full Balance?

I have a Walmart store credit card that went into collections for $225. Recently the collections agency sent a letter saying I could pay $139 and it'll say Paid Off Less than Full Balance. Or I can pay off the full amount and it will be reported as Paid in Full. Would I still be able to pay off the card inside a Walmart location? So it says paid without the collections? Or what is my best option for this scenario? – Yvonne


I can’t speak to whether or not you’ll be able to pay the debt at a Walmart location. Some companies maintain their own collections department, but most usually sell these types of debts to a third party collection agency. Once you’ve decided how to proceed, you should call the number included in the letter and they should be able to provide your repayment options.

It’s important to note, though, that whichever amount you decide to pay, the fact that the account was sent to collections will not be erased from your credit report. Any negative marks resulting from missed payments or an account charge off will remain on your credit report for seven years. Paying at the store or through the collection agency doesn’t make a difference in that regard.

Whether or not the account was paid in full, however, does make a difference. Most credit scoring models do take this distinction into account when calculating scores.

Paying off an account in full is almost always better for your credit score. How much it ultimately affects your score really depends on the rest of your credit history.

Also, it should be noted that if you agree to a less than full balance payoff the creditor may report this to the IRS, and as a result you may be required to claim that forgiven debt as income on your next tax return. If you’re considering a credit card settlement and aren’t sure how the forgiven debt may impact your tax return, please consult with a tax professional.

Settle Card or Payoff in Full?

As for which is your best option, that’s ultimately up to you. If you’re concerned about your credit score because you know you may need to take out a loan in the near future, paying in full puts you in a better position going forward. If your credit is already suffering and money is tight, the settlement is an acceptable option. Just make sure you get the agreement in writing before making any payment.

Good luck!

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Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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