How Long Should I Wait to Settle a Debt?

Know the rules before settling a debt.

As Soon as Possible

Debt expert Gerri Detweiler, author of "The Ultimate Credit Handbook," notes that creditors would rather settle a consumer's debt than not be paid at all because you filed bankruptcy. The longer you wait to settle a debt, the harder the hit on your credit score. Settle a debt as soon as financially possible to avoid damage to your credit.

Statute of Limitations

The statute of limitations regulates the amount of time a creditor has to take legal action against you for a debt. Edward Jamison, of the Jamison Law Group, advises against settling a debt beyond the statute of limitations. If the statute of limitations has ended, a creditor cannot sue you or garnish your wages; however, they can use other methods to gain payment. Be warned, any payment you make resets the statute of limitations clock.

Bottom Line

Edward Jamison advises consumers to settle for as little as possible, "It's better to save 50 cents on the dollar and lose a couple points off your credit score by having a settlement as opposed to 'paid in full' because the collection and the charge-off notation is what's hurting the account."