If you agree to settle your debt, don’t send the collection agency any money until you get a faxed or scanned letter saying that they’ll accept your payment and that the payoff will absolve you of any future legal obligation for that debt. After you get that, you’ll have to send over the money within a day or so, which means it’s not a good idea to agree to a settlement unless you have cash in hand.
Even then, the debt won’t disappear from your life immediately. After a settlement, according to Paperno, these actions generally stay on credit reports for seven years. And be aware that the difference between what you owed and what you settle for will probably be listed as taxable income for IRS purposes, says Dorothy Varrick, group manager and financial counselor at GreenPath Debt Solutions.