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The simple answer is..a settlement is an agreement between the creditor and debtor for repayment of a specified amount of the debt, thereby ending the transaction (hopefully). A charge off is the action taken by the creditor after an account has been in default for 180 days. The debt is still owed and the creditor has several options to collect monies owed, including legal remedies such as a lawsuit.

So if it is then paid will it show settled on the credit report? And if so is it a big difference between the two as far as credit score goes?

If you decide to just ignore the debt, you still owe it to someone. A charge-off with a $0 balance looks much better to potential lenders than a charge-off with a $5000 balance that's still in collections. Plus, the creditor (or any collection agency willing to buy your debt for pennies on the dollar) can come after you in court YEARS later. Here's an example: You owe Sears $4000 on your Sears Card but haven't paid in 8 months. Sears charges the account off and holds the paperwork (they have up to 6 years in most states to come after you). Joe's Collection Agency goes to Sears and buys your account from them for $160. Now, Joe's can call you and offer a settlement for $2000 and still make a boatload of cash. The charge-off shows as "sold/transferred" on your credit report, and you also have a charge-off from Joe's with a $0 balance. What I would do: Talk to the creditor and see if there's a way to settle out of the account and have it removed from your reports. It's often called a "pay for removal". Just make sure you get their promise in writing.

The question might be better phrased "Should I pay the balance in full or pay the amount of the settlement offer?

Paying the balance is ALWAYS better. Why: To a risk manager, a person who pays their balances in full is a much better risk than a person who does not.

A settlement, on the other hand, though necessary for some, is not the preferred choice. Why? Several reasons;

1) By definition, a settlement is some amount less than the full balance. Before you pay any settlement, first have IN YOUR HAND a copy of the settlement offer from the firm making the offer. If you do NOT have the hard copy in your hand, it is YOUR word against theirs and the next collection agency will be after you again in a few months for the difference between what you paid and the balance - which will very likely be higher because of added interest & cost of collections. This can haunt a consumer for years.

2) Any time you agree to a settlement and the difference between what you paid and what you owed is equal to or greater than $600., the IRS requires the financial institution that "gifted" you the difference must send you a 1099C at year's end listing the amount of that gift. You then count this "gift" as taxable income for the year in which the settlement was paid.

3) For those who are concerned about their credit report scores, it is easier to remove a "balance paid in full" from the credit bureau report than it is to remove a "legally settled for less than the full balance".

Think about a settlement carefully before you decide. You cannot go back later and pay the difference. I would evaluate the amount of my savings in the settlement against the my tax liability at year's end and the increased cost of interest that I will pay over the next 7.5 years. My credit score is very likely going to drop as a result of my settlement.Decide wisely. Pay it off. You can also try to negotiate the removal of the charge off upon final payment of the balance. Either way you don't want the company to continue to report to your credit report with a balance. The sooner you pay it off the sooner you have a chance of removing it off your credit report.

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Q: Should you still pay credit card charge offs or settle the account if they both have the same negative results on your credit report?
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