If you want to know whether settling debts is as good as paying them in full then the answer is no.
A settlement usually takes place after the account has been in default or has been declared as delinquent. Once this happens the late payment gets reported to the credit bureau and reflects on your credit score for a period of seven years from the date of the first reporting. Settling a debt after the late payment has been recorded will do nothing to remove the entry from your credit report.
Settling a debt usually involves paying the creditor and amount lesser than what was agreed upon earlier. Whether you pay back the lender through a debt management plan with lowered rate of interest, extension of tenure etc or you make a one-time settlement, the creditor usually reports the status of your account to the credit bureau.
Whenever you are paying back a lender under the management plan the count on your credit report reflects this for all future lenders to see.
Whenever you settle an account by paying an amount lesser than agreed upon earlier the status of your account on the credit report will show as ‘ settled’ rather than ‘ paid in full’.
This shows your future creditors that you were all currently facing some sort of a credit crisis point which you are not being able to pay the full money that you owe.
If you are paying back the creditor under a debt management plan you most likely be refused further credit during the time that you are under the repayment plan. Even after that certain creditors may be unwilling to work with you owing to your shaky financial past. However, it should be noted that some creditors not take a positive view of a person involved in a debt management plan as someone who is trying to get his debt under control.
Negotiating a settlement account with your creditors such as the credit card company will have the same effect of your credit report showing that you settled debts rather than paying them in full.
Under rare circumstances it is possible to negotiate lower terms with your creditor without your credit report getting affected. This is possible when you have worked with a lender a long time and have a good and stable payment history with him. It is important to approach the slender before the credit crisis strikes and you begin to miss the payments. It may be possible for you to explain to your lender beforehand that your facing financial difficulties and it is going to get difficult for you to meet the payments in the future under the current terms of tenure and interest. The creditor may be willing to work with you and make concessions were you in terms of the amount you need to pay without reporting your account as being in settlement.