This article is for informational purposes only and should not be construed as financial advice.
Have you recently settled a debt on your own and are wondering what to look for in a paid in full letter?
As a previous CEO of a debt settlement company, I have settled a lot of debt in my life. So, I understand how to settle debt, who sues, what are the pros and cons of doing it yourself vs hiring a firm, and what to look for in a paid in full letter.
Confirm Collection Agency Provides a Proof Paid In Full Letter Before Settling
Before you settle the account and send the funds, it may be helpful to confirm with the debt collector or agency that they provide physical paid in full letters.
For example, let’s say you settle the account and then you request a proof paid in full letter, and then the collection agency states that it does not provide those letters. Then what do you do?
You have leverage before funds are sent, so you can make sure that they provide a paid in full letter before settling. If you feel extra cautious, you may consider asking the collection agency to add that verbiage to the agreement.
“When the negotiated payment has been received, (Collection Agency Name) will provide a proof paid in full letter via email or fax.”
Let’s discuss why it’s important to get the paid in full letter in writing next.
Get the Paid In Full Letter in Writing
Having important documents in writing is always very helpful, especially in situations like this so that other collection agencies do not try to pursue you. When sending a letter informing your creditor or collection agency that you have paid the debt in full, include a statement as simple as, “You’ll find my final payment on the above referenced account enclosed. I request written confirmation showing this account as {paid in full or settled} according to our agreement on {insert date of agreement}.”
In one situation, I found that we negotiated and settled an account. Then, the original creditor or collection agency sold or redistributed the debt to another collection agency. The new debt collector tried to negotiate on an account that was previously settled. While this was a settlement agreement (not a paid in full letter), you can hopefully understand how important it is to get these documents in writing.
Here’s an anonymized example of a paid in full letter from debt collector.
Let’s next cover the paid in full verbiage to look out for in the letter.
Understand the Paid In Full Verbiage
When reviewing the paid in full letter from your creditors, be sure that you understand everything being stated. If you have any questions about the wording of their letter, be sure to follow up so that you can confirm you are in the clear.
Does it Clearly State the Account is Paid Off?
There are three very important things to look out for in your letter. The first being, does the letter clearly state that your account is paid off in full? This is very important to ensure they do not try to pursue any further action.
Does it Show a $0.00 Balance?
The second thing to look out for is a balance statement. Make sure there is no remaining balance stated in the letter. The balance should be $0.00 if you have paid it off in full.
Are there Any Stipulations?
Lastly, look for any stipulations. You should make sure you aren’t agreeing to anything that you may regret or not even realize as you’re reading the letter.
Look at your Credit Report
When paying off a debt, it should help your credit score go up. However, after you have paid off an account, consider keeping it open. This is because sometimes, closing old accounts can cause your credit score to drop.
When looking at your credit report, be sure to look for any incorrect information. If you find anything, you are able to dispute it, this is called credit repair. You may also be able to reach out to your creditor directly and ask them to correct the issue for you. Be sure to check for updates after requesting the change, and if nothing changes, contact the credit bureaus to ensure they are reporting correct credit information to the bureaus.
Does it Show that it is Paid, Settled for Less?
When requesting a paid in full letter, request that it says “paid in full” rather than “settled in full.” When future lenders are looking, “settled in full” cause indicate a debt settlement program which can cause them to view you as a “riskier borrower.” This can lead you to have higher interest rates in the future or the potential of lenders denying your applications. It may show when you settle credit card debt for less accordingly on your credit report.
Summing it Up
You may still be curious if you should or should not settle debt on your own. Although the answer will vary depending on each situation, we built a DIY Debt Settlement calculator below to help go through questions that can help you understand the pros and cons of hiring a company vs settling debt on your own to help you make the most informed decision.
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