What Is a Paid in Full Letter and How to Request One?

Congratulations! You are one step away from paying off your loan and getting rid of a financial burden. Paying off the loan isn’t always the end, though. You have to be sure that debt won’t come back at you. A paid-in-full letter is a key part of the process.

Unfortunately, The internet is littered with horrifying stories of people who paid their debts or settled them, only to be haunted by them again in the not-too-distant future^[1].

What usually happens is that the original creditor sells the debt to a collection agency or another creditor, and through some mistake, the closed account gets sold as an open one. This is known as zombie debt.

You shouldn’t give zombie debt the chance to bite you in the future. You need to get some proof from the creditor showing that you are no longer obligated to them. A paid-in-full letter is one way to do that.

What Is a Paid-in-Full Letter?

Whenever you pay off a debt in full, you should receive a paid-in-full letter from your creditor confirming the status of your debt. This letter validates that you have fulfilled your financial obligations and acts as future proof that insulates you from any collection agency coming after you. Moreover, you can use this letter to fight any inaccuracies on your credit report should the need arise.

In an ideal world, your creditor should send you this letter on their own, without any prompting from your end. However, given how important this document is, you should also be ready to send your creditor a request for the letter.

Before we look at how you can write a request, let’s answer a more fundamental question first.

🏃‍♀️ Learn more: Learn how to get out of debt for good with our straightforward, five-step debt-elimination strategy.

What Does It Mean to Pay Off Your Debt?

There are different ways you can close a debt account, yet each choice has certain ramifications for your credit score and financial future:

1. Paying in Full

When you pay back everything you owe, including the principal, interest charges, and outstanding fees, then you have paid in full. This means that you don’t have to pay anymore, and your credit score will reflect the conclusion of your fiscal responsibility. Additionally, if you made all the payments on time, your debt account will be considered in “good standing,” and your credit score should increase.

2. Settled in Full

The second possibility is that you and your creditor come to an agreement of sorts, especially if you are struggling to pay off the debt in full and on time. What will usually happen is that the agreement will require you to pay a portion of the debt but not the whole thing. In return, the creditor will close your debt account and mark it as settled in full. Unfortunately, this also means that your credit score might take a hit as you couldn’t pay all of your debt.

Only unsecured debts can be settled. If your loan is secured, like a mortgage or car loan, your creditor will seize the collateral before they settle.

3. Charged Off

At the extreme end of the spectrum, if you fail to pay what is owed, your creditor might charge off your account and sell it to a debt collector. In this scenario, a charged-off account will damage your credit score and remain etched on your credit report for seven years.

What Does a Paid-in-Full Letter Contain?

The paid-in-full letter confirms that you have fulfilled your financial obligations to your creditor. To that end, it contains three important elements:

1. The first thing is an explicit declaration that the account has been paid off. This statement is critical and will ensure that no one pursues you later down the road for a debt that has already been satisfied.
2. The letter should also contain a balance statement of $0.00. Anything else means you still owe money, which is no longer the case.
3. Some letters might contain stipulations. You should look out for those and be sure that you aren’t agreeing to something that could harm you in the future.

If the paid-in-full letter contains any language, terms, or conditions that you do not fully understand, reach out to your creditor and ask for clarification.

Sending a Paid in Full Letter Request

Again, in a perfect world, your creditor or collection agency will send you a paid-in-full letter once you send in the final payment. But to safeguard your financial future, it is important to take the initiative, which includes being ready to send in a request.

In fact, to be fully proactive, when you are sending the final payment to your creditor, you can send along a letter that states you want written confirmation from their end regarding the status of the debt account.  You could say something to the effect of:

“Please find enclosed within this letter my final payment on the above-referenced account. I request written confirmation that states this account has been {either paid in full or settled according to the agreement between you and the creditor}.”

While the above statement will be the heart of your letter request, let’s take a closer look at all of the different elements that you want to include.

The Different Elements to Include in a Paid-in-Full Letter Request

✍️ When writing up your request, here are the main components that you need to include, along with where in the request you should include them:

• The date should be at the top of the page.
• Your name and personal contact details should follow. Your contact details include your address and phone number, and each piece of information should occupy its own line.
• After your details, your creditor’s details should follow, details such as their name and contact details. Again, each piece of information takes up a line.
• Then, you want to put the letter heading, and that should contain your account number.
• Past the heading, you should write a brief introduction that just grabs attention. You don’t need to add anything fancy here as a simple “Dear Sir/ Madam” or “To whom it may concern” will do the trick.

📝 Now, we arrive at the body of the letter:

• Explain why you are sending them this letter: describe how much debt you have left, the date on which you are making your final payment, and the nature of any agreement (if there is any) between you and the creditor.
• Assuming that you are sending the payment and the request together, you should highlight that the payment is enclosed and that you want the creditor to send you back a written confirmation that they have received the final payment and that your debt is paid in full.
• If you have already sent in the payment and haven’t received a paid-in-full letter from your creditor, you can also send proof of the final payment, such as a canceled check.
• You might want to mention that if the creditor doesn’t officially respond to you within a specific period of time, you will consider the request along with the acceptance of the enclosed payment as evidence that you have paid your account in full.
• You can also ask your creditor to let credit reporting agencies know that your account has been paid in full.

Make sure to keep a copy of the letter. After all, keeping a meticulous record is one of the best ways to make sure that you are protected from any mistakes on your creditor’s end.

Paid in Full Letter Request Sample

With the above elements laid out, let’s take a look at what a letter might look like:

Dealing with Aggressive Collection Agencies

In some cases, you might have been hounded by collection agencies, in which case you want to let them know that not only have you paid off your debt but that any further communication from their end is also unwelcome.

Here is something you can add to the body of your request to make sure they don’t reach out again:

“Having fully paid my debt, I do not expect to hear from you again once I receive my written confirmation from you. Should you contact me in the future, this contact will be regarded as harassment, which I will immediately report to both my State Attorney General and the Federal Trade Commission. Additionally, I will pursue legal action should the need arise. To ensure that I will not be harassed by you, I request that you remove my account along with any and all references to my personal information from your records.”

What to Do After Paying in Full and Sending a Request?

Once you’ve sent in your request, you should confirm that the new status of your account is reflected on your credit report. Lenders typically report to credit reporting agencies every 30 to 45 days, so it will take a little while for your final payment to reflect on your credit score.

Be Prepared for Your Credit Score to Take a Temporary Dip

There is a caveat worth mentioning here: closing a debt account could temporarily lower your score. In other words, you shouldn’t be surprised if your credit score takes a slight dip at first.

There are a few reasons your credit score could drop. If the debt account is an old one in good standing, then closing it will shorten the length of your credit history, which affects your credit score. Closing the account might also affect your credit mix, which is just another reason your score might drop.

💸 Learn more: Stay on top of your financial standing by following our tips on getting your free credit report.

Tips to Bear in Mind When Closing out Your Debt

The purpose of the paid-in-full letter is to provide proof that you are no longer financially obligated to your creditor. There are additional safety measures you can take to protect yourself against any future mishaps.

1. Use certified mail, which will verify that your creditor received your letter. If you want further verification, use a return receipt.
2. Keep bank statements, receipts, and records of payment. Keeping a meticulous record is your best safeguard against the future.
3. Always send copies rather than originals when possible. Keep the original documents.

If you are paying a collection agency, you might want to try removing collection marks from your credit report by sending your creditor a goodwill letter asking them to do so. The letter may or may not work, but it can’t hurt to send one.

Putting It All Together

It’s easy to think that when you make the last payment on a debt, it’s gone. That’s certainly the way it should be. It doesn’t always work that way, though, and a paid-in-full letter is a useful insurance policy against a “zombie debt” incident or a credit bureau refusing to list a debt as paid.

A paid-in-full letter is usually easy to get (you should get one without asking), and it can be very useful down the line, so it’s always good to have one on hand for every debt you pay off.