5 Debt Settlement Myths Debunked
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5 Debt Settlement Myths Debunked

John Ulzheimer
Written by John Ulzheimer

There are far too many myths floating around the world of consumer credit. The process and subsequent impact of settling derogatory debts with a debt settlement is no exception to that rule.

A debt settlement is the process where the debtor and the creditor agree on an amount that will satisfy the debt.

Although it has not been “paid in full,” the debt settlement allows for the creditor to be owed nothing more from the debtor.

This is when the myths tend to occur:

Myth #1: Settled debt is deleted from credit reports

Truth — Settled debt remains on a consumer’s credit report until it is required to be removed by federal law.

The Fair Credit Reporting Act, FCRA, governs virtually all things related to consumer credit including how long derogatory items can remain on credit reports. There is nothing in the FCRA that requires that an account be removed from a credit report just because it has been paid or settled. The credit reporting agencies are allowed to continue to report it until the full seven years has passed.

Many consumers attempt to negotiate “pay for delete” settlement arrangements with collection agencies. While “pay for delete” arrangements between consumers and collection agencies are not illegal under the FCRA, those deals violate the service agreements between the collection agencies and the credit bureaus.

If a collection agency gets caught granting “pay for delete” settlements to consumers, then the agency could lose its ability to report accounts to the credit bureaus altogether. Anyone who suggests pay for delete deals are common is misleading you.

Myth #2: Credit reports reflect unpaid balance on settled debt

Truth — If a consumer pays the agreed upon debt settlement offer then the balance of the account becomes zero and the credit report should be updated accordingly.

When a debt settlement, formally known as an “offer in compromise,” is agreed upon by a creditor and paid by a debtor the remaining balance on the account is forgiven. Once the debt has been settled the debtor owes no additional monies on the account UNLESS he or she foolishly agreed to be liable for the deficiency balance.

About the author

John Ulzheimer

John Ulzheimer

John Ulzheimer is a nationally recognized expert on credit reporting,
credit scoring and identity theft. He is the credit blogger for
VantageScore Solutions, JD Byrider, The Credit Solution Program , and
the National Foundation for Credit Counseling. Formerly of FICO and
Equifax, John is the only recognized credit expert who actually comes
from the credit industry.


  • When I first made my CK acct,I had quite a few derogatory accts. All were medical,some were older than 7 years. One day I log into CK and damn near all of them disappeared. A couple was left on though. So I noticed that every time I pay one off a new one pops up. Has anyone ever had this happen? It’s cray cray.

    • Yes, because someone else has bought the debt and when you thought it would disappear from the report it did NOT.

  • There is nothing in the Law that states that late payments or settlements has to stay on your report for seven years befor it can be removed. Why not publish the law as it is printed.

  • Is this true or not??

    Paying a collection company means you are giving your money away to a seedy collection company who strongarms and confuses people into paying these things all the time. Your benefit? Nothing. *Nothing at all*
    The original creditor has already sold the debt to the agency and your credit score is tarnished for 7 years. End of story. Welcome to America!
    Take a swing back at the completely corrupt system that has put you in this situation and DO NOT PAY THE COLLECTION AGENCY EVER.
    Here’s why:
    No matter what happened to lead you to having a derogatory mark — whether it was actual deliberate negligence with a credit card, or completely uncontrollable medical debt — the greedy lawyers and bank lobbyists who set up this idiotic system simply lump all of this debt together in one big “you didn’t pay for this” category on our reports.
    The end result is: you pay higher interest rates for EVERYTHING. Which means *even more money* for the big banks. Good luck getting our government to fix this, too! It benefits those who have all the money, which incidentally are the people who run the government.
    No matter how small the bill, no matter if it was an insurance company’s clerical error / disorganization that led to the mark showing up on your report; It’s there, it’s severely impacting your credit score, and it’s not going anywhere for seven years. Period.
    There seems to be a lot of faux information floating around that you can “pay-to-delete” accounts in collections from your report, but this is completely and totally unsupported by ANY facts. I have *NEVER* seen a single *reliable* reference for how to handle this. If pay-to-delete isn’t analogous to the tooth-fairy, then CreditKarma should offer an integrated service (no 3rd party stuff which just seems like paid advertising) to help with this specific issue. They don’t. Why? Because you can’t do this. Because it’s illegal.
    At a minimum, CreditKarma should have an official “pay-to-delete” info page to dispell these rumors and set the facts straight.

  • I have learned so much from Mike in regards to cleaning up my credit. My score has gone up 41 points in the last 13 months by reading his terrific steps on how to increase your credit score. I purchased the Credit Solution Program and followed his steps to the letter and my score continued to rise.

    Thanks Mike for everything.

    Larry Marshall

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