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Debt settlement is a way to reduce your debts by paying only a percentage of what you owe. For debt settlement to be successful, your creditors and lenders (the people you owe) must agree to accept a lower amount as satisfaction for your debt.


Debt negotiation or debt settlement as it is now called is an honest and effective alternative to other debt relief programs and bankruptcy. Debt settlement programs are the most aggressive way to handle your debts. Debt settlement companies work for the consumer. Debt settlement programs are the only programs where you are not paying back 100% of the principle plus interest and late fees. People ask what happens to the rest of the money that they owe and the truth is the balance is actually forgiven by the creditor in a transaction called a settlement. This process allows you to handle your debts in a much shorter time frame than any other program due to the reduced principle you are paying. The major advantages of enrolling in a Debt Settlement a program are:


  • Honest and Honorable way to avoid bankruptcy
  • No public record of ever enrolling in a debt settlement program
  • You choose how long you want the program to run
  • 1-3 year program vs. 6-9 years in debt consolidation and counseling programs
  • Allows for flexibility if a monthly payment is missed.

Debt settlement is not for everyone in debt.  Debt settlement is designed for debtors who have difficulty paying even the minimum amount requirements of their monthly credit card statements and more often than not are in default on these monthly dues. If you can pay the monthly minimum amount on your credit card bills and you’re not in default on any of them, then debt settlement may not be the right debt relief program for you.

After having a thorough discussion with a Debt Consultant about your debts and financial situation, and the debtor will begin putting payments in a savings account based on the new lower monthly payments that the debt settlement company has estimated for the debtor. Once the account has grown to a certain amount, the debt settlement company calls your creditors and begins negotiating a settlement with them. When the creditor agrees to an amount, the settlement company pays the creditor.

Debt settlement must be a decision reached after careful and exhaustive review of all other debt relief options available like debt consolidation, credit counseling, and bankruptcy.


Debt settlement is an option for people who are currently behind on their debt payments. It is an alternative to bankruptcy and will let you get rid of a lot of debt with less money than you owe. You can negotiate debt settlement yourself or you can use a company to do it for you.

For debtors, debt settlement is the only debt relief program that can radically reduces their principal debts by a significant percentage.  That’s the most compelling reason for debtors to pursue debt settlement Debt settlement payments are significantly less than what is currently being paid.  In the case of credit card debts, payments under debt settlement plans are far below the minimum amount requirements of their monthly credit card billing statements.

There is high probability that his debt settlement company may assist in the removal of his credit derogatory remarks even during the early period of the debt settlement program and not after the agreed reduced debt has been totally paid which is usually the creditor’s requirement.  This of course is totally dependent on the professional relationship of your debt settlement company with your creditor.  But certainly there is that possibility.


Against the possibility that the debtor can opt to file for bankruptcy where creditors are left dry, debt settlement becomes even more acceptable.


There is also an appealing option for creditors to collect all existing debts owed by the debtor clients of the debt settlement company under a unified debt settlement agreement, which can be a significant amount even at a much reduced percentage.  Taken against the protracted period of collection through a collection agency, plus the promise of a faster debt recovery, in the final analysis, debt settlement tops them all.

After completing a Hardship debt settlement program you enrolled in, it may have an adverse effect on your credit as the minimum payments are not being made to the creditors reflecting derogatory or lates on your credit report, however, once the account has been settled and negotiated it should be reported by your creditor as a zero balance (paid as agreed, paid as settled, paid in full, etc.).  And no third party such as a debt settlement company will be reflected on your credit report as to having assisted you to manage your debt situation.  It will merely appear as you paid it off on your own, which is best for your credit.


Additionally, as each account gets paid off, and reflects a zero balance on your credit report that will appear as a positive as your total “debt to income” ratio should decrease, which is favorably to your credit overall.


Unfortunately, there are many determining factors that increase and decrease credit score, did you know that just by having balance close to the credit limit, regardless if you were current with minimum payments on time, may actually decease your credit score as well.  With that being said, a debt settlement company cannot give you a definite time line as to when your credit score will go up. Below are some information from www.myfico.com.  As you can see that the Payment history only has a 35% factor in effecting a credit score. Depending on what is happening for your other type’s credit, making on time payments to installment accounts such as a Mortgage or Auto Loan (if applicable) will help. And not applying for new credit right away should also help, as excessive creditor inquiries may also harm your credit.

Fico score breakdown

These percentages are based on the importance of the five categories for the general population.