After 7 seven years (in most cases), a debt will disappear from your credit report. If the debt has gone unpaid for 7 years, then it can no longer legally remain on your credit report. You can challenge this listing on your credit report and it will come off. Please note: the amount of time a late payment can appear on your credit report has nothing to do with the statute of limitations. Very important distinction. Even though a debt may no longer legally appear on your credit report after 7 years, you could still be sued for the debt if the statute of limitations for your debt in your state is not up. To see how long a negative item remains on your report, click here.

If the debt is gone from your credit report AND the statute of limitations is up on this debt, you're home free! If enough time has passed for both the legal debt collection statutes of limitations and the credit report limitations has passed, don't worry about the debt! If your debt meets both of these conditions, it is uncollectable and it cannot appear on your credit report! If you get to this point, stop here, you are done!

My debts are not past the statute of limitations, and I need to settle them.

With the amount of people who are going over their heads in debt these days, most credit card companies have programs which will automatically reduce your debt by 25 - 50%. They will close your account and put you on a payment plan if they feel you can afford it. The general feeling here is better half than none.

Understanding the True Risks and Realities of Overdue Debts

Too many consumers feel that their debts are overwhelming and there is nothing they can do other than file a bankruptcy. Consumers believe those awful tales spun by collection agencies of impending doom, especially about garnishment and seizure of property. Collection agents fail to mention (surprise!) that in order for these actions to take place, the creditor must first go to court. So, due to lack of information, many consumers turn prematurely to bankruptcy. Bankruptcy should not be used until after all options are exhausted, including the settlement procedures we are going to talk about here. In addition to getting out of your debts by settling, see our other alternatives to filing a bankruptcy.

The risks of judgments, garnishments, and property seizures must be properly balanced against the likelihood that such drastic collection measures will ever happen. The risk, and the decision to take that risk, are entirely yours if you're in such a position.

Debts Which are Good Candidates For Settlement

There are two basic categories of debt, for the purpose of this article: secured and unsecured.

Unsecured debts include:

• medical bills
• credit cards
• department store cards
• personal loans
• student loans
• bounced checks

Secured debts include:

• home
• auto

With a secured debt, a piece of real property (such as an automobile or a home) is promised if the debtor can't finish making payments, or defaults, on the loan. You will not be able to settle these debts, as the creditor will simply accept the promised property as the "settlement."

With unsecured debts, there is nothing "attached" to the loan promised as repayment. Unsecured loans are typically given to people with good credit, due solely to the fact that they have good credit. These are the type of debts that a creditor is willing to settle, as they have no way to guarantee they will receive anything from you.

Why would the creditor settle with you?

1. If he believes it is in his best interest (you have convinced him that this is his only chance to receive anything.)
2. If he doesn't think that you have many assets (if he does sue, he won't be able to collect anything from you even if he wins.)

So what does this say? If you've been paying on time and all of the sudden call up the credit card company and tell them you can't pay, they are going to be suspicious and less likely to make a deal. But don't stop paying your bills just to try and convince them to settle. Have an honest conversation with them first.

How to get a creditor to make the deal you want

You have the natural advantage in debt settlement, because you have something the creditor wants. Don't cave in when they first tell you no. Maintain calm. Don't lose it and get angry. It's usually best to correspond with them via letters, so you have a paper trail of all your actions. Keep the attitude at all times that the collection agency will take less money then they say they will. What's the limit? I would say that if they offer you 50%, take it.

1. Get your terms in writing before you even open your checkbook. Here is a sample of an agreement requesting the reduction of your debt amount. Never expect a creditor to meet an agreement that was made verbally. Everything must be in writing and, even then, you will probably have to fight to make the creditor live up to his end of the bargain.

2. Keep good records. This can be the difference between a good and bad settlement. Don't expect them to remember you or what you agreed upon.
   • Send all correspondence via registered mail (about $2 a letter).
   • Keep a copy of every letter you send.
   • Include a self-addressed, stamped envelope with every letter. (Make it as easy as possible for them to contact you.)
   • If you call, keep a log of when you spoke to the agencies, and who you spoke with. Ask for the name of the supervisor of the person you spoke to, as the turnover rate at collections agencies is high.
   • Follow up all phone correspondence with a letter (registered, of course).
   

3. Penalties and extra interest should be your first target in reducing the debt. Maybe you don't have sufficient funds to repay a debt in full when a creditor demands payment. In many cases, much of the debt represents interest and penalties accrued while the consumer was unable to pay. It will be in the best interests of both parties to reach a reasonable arrangement for settlement. Most companies would be thrilled to get you to pay the original debt even without the extra penalties they add on and will usually be more agreeable to waive these fees.

4. Time is on your side. As time passes, the creditors will likely stop calling and the debt will be filed away for future attention. The longer the debt remains uncollected, the better your chances will be of getting a good settlement. Eventually, the creditor will consider the bad debt a loss in order to receive a corporate tax write-off. This does not necessarily mean that they won't pursue you for the debt. The corporation may then collect on the debt themselves, sell or assign the debt to a collection agency, press for a judgment and garnishment, or temporarily ignore the debt. The course of action chosen by the creditor will vary widely between corporations and debts.

   If you're contacted by more than one collection agency for the same debt, it means that the original creditor has hired a secondary or even tertiary collection agency. This indicates that the original creditor and even the first collection agency has given up on you. A collection agency that agrees to take your debt at this time will insist the original creditor pay a generous fee (usually 50%-60% of what is owed). Many secondary and tertiary agencies will take 33-55 cents on the dollar. If the agency hasn't been able to reach you by phone but knows that you are receiving its letters, it may be willing to take even less.

5. Never look too eager to settle. Take plenty of time to reach an agreement. Don't accept the first, or even second, settlement offer. Make sure that they are the ones calling you to push the deal forward. You cannot expect to reach an affordable settlement if the creditor thinks he has the upper hand. If, for example, you tell a creditor that you really need to get this debt settled to get into your dream home, you can forget any kind of settlement. The creditor will insist on the full balance.

6. Remind the creditor that the statute of limitations is approaching on the debt and they only have a limited time to deal with you. Know when the statue is up on each debt and be prepared to give the creditor the time line.

7. Use the threat of bankruptcy. It will be in your best interest if the creditor believes that you have very little money and you are teetering on the edge of bankruptcy. You should approach each creditor as though this is their last chance to compromise, and get something out of your debt, before you declare bankruptcy and they get nothing. Be careful when doing this, however. If you accumulate any more debt after stating this to a creditor, (and they record all of your correspondence and phone calls), you may not be able to discharge this debt within bankruptcy.

Don't forget! Negotiate your credit rating with the creditor