With the current state of our economy and its effect on consumers, more and more people are looking at debt settlement as an alternative to bankruptcy.

In many cases those who are considering bankruptcy owing to credit card debt, medical bills, or personal loans are finding that debt settlement may be a better solution for their financial problems.

Just about any type of unsecured debt may be subject to debt settlement. On the other hand, debt settlement is not usually applicable to delinquent mortgages, liens or other secured debts.

In its simplest form, debt settlement is nothing more than negotiation with creditors in which one offers to pay off less than what is currently owed in exchange for the creditor considering the account “paid in full”.

In a debt settlement scenario, creditors are contacted either by the debitor, or by debt settlement professionals working on behalf of the deliquent debtor, and offered a reduced sum of money in exchange for the forgiveness of the rest of the currently outstanding debt.


When creditors accept a settlement amount, the debtor is only required to pay that amount, and is not responsible for the remainder of the original amount owed.

In many debt settlement scenarios, creditors will accept 40% to 60% of the balance due as full payment. In some cases the reduced payment amount may be offered to the creditor in one lump sum. In other cases the offer involves lower monthly payments being made to pay off the settlement amount. Once the lump sum or final reduced payment is made, the account is considered “settled” and the debtor no longer owes the creditor anything.

While consumers can complete debt settlements themselves, it is often a complex process that demands time and dedication and requires both negotiation and organizational skills not common in most people, particularly those already stressed by harsh economic realities. This is why most people seeking debt settlement turn to professional settlement negotiators.

Debt settlement professionals have the skills, the experience, the contacts and the relationships with creditors to obtain more favorable settlements than will the consumer trying to handle negotiations by themselves.

Another valuable aspect of using professional settlement negotiators is that they provide a buffer between their clients and creditors who are looking to maximize the recovery on deliquent accounts. Additionally, using professionals to negotiate a debt settlement may also help to deter legal action, annoying phone calls and threatening letters, all of which add to the anxiety level of already stressed consumers.

Of course professional debt settlement assistance comes with a price, a commission/fee which is typically a percentage of the difference bewteen the original amount owed and the settlement amount. The good news is that the commission fee is usually not expected until a settlement is worked out.

Also, many debt settlement companies will include their commission fees in with the negotiated monthly settlement payments so the consumer will not have any up front out-of-pocket expenses.

While debt settlement definitely helps ease immediate financial burdens, it does not remedy a damaged credit score, especially during any negotiated repayment process.

However once the settled debts are paid, one can start credit report repair efforts and over time demonstrate they are credit-worthy once more.

Debt settlement is not the perfect solution to overwhelming indebtedness, however it is in most cases a far better outcome than lawsuits and/or bankruptcy.