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Debt settlement is a complex and often difficult procedure which requires not only tenacity but a constantly opened eye which is always monitoring the pros and cons of debt settlement. Approaching the creditor for a debt settlement needs to be done with a lot of homework and planning and the debtor should be thorough in preparation in order to make sure that they do not lose more money or get caught up in legal hassles.

Homework Before Negotiations

Status of Debt

The first step is to find out the status of the loan. Some loans are treated as ‘charged off’ and creditors treat them so as they count them as bad debts and take in consideration with other losses. If the loan is too small or if the amount receivable does not equate well with collection costs, the creditor may choose not to pursue the loan. If the debtor’s loan is insignificant to the creditor and if the debtor convinces the creditor that they are unable to pay, the creditor may label the loan as charged off. The creditors usually send notice to the debtors in such an event and even so, the debt will have to be shown as income while filing taxes. The debt becomes legally paid.

Find Out Details such as the Statute of Limitation

The statute of limitations is the period during which the creditors are allowed to file a suit in court for the collection of a debt. Various states have various statutes and the time period varies. The debtor should be aware of the statute in their own states. The creditor cannot collect the debt from the debtor if the statute of limitation has passed. While negotiating with the creditor, it would be beneficial for the debtor to be aware of such time periods as if such time period has elapsed, the debtor in within his rights to ask the creditors to stop efforts in recollecting uncollectible debt. The credit reports, which keep a record of debts and non-payments remove past debts which are due generally after a period of seven years. The debtor can ask the listing to remove the debt after the statute of limitation has passed in order to have a clean credit report. Late payments and delinquent accounts stay on the credit report though as they do not fall under the purview of the statutes and the creditors are well within their rights to sue in case the statute is still valid. A debtor becomes completely free of debt when the statute of limitation passes as the debt disappears from the credit report.

Negotiate Change of Status

When the debt settlement procedure is accepted by the creditor, the report on the debtor’s account will be shown as ‘Settled’ or ‘Paid as agreed’ and these sort of statuses have a negative impact on the credit score. The debtor should go in with a plan to settle for a ‘Pay for delete’ agreement which basically removes such a debt from the report post payment. If they do not agree to such a status, the debtor can also angle for a ‘Paid in Full’ status as these statuses have less negative impact on credit scores. The debtor, after carefully weighing the pros and cons of debt settlement must enter the agreement and honor it showing that they are committed in fulfilling the debt settlement. Creditors often co-operate and work together with committed debtors to settle dues as it is better for them as well.


Charlie, a financial consultant, has been writing about the pros and cons of debt settlement and the methods and procedures of debt settlement for over ten years. He often provides insights to those in need of help regarding their debts and how to resolve them. To know more visit –