Overview
Debt Settlement
A debt settlement is an agreement between a debtor and a
creditor to fully satisfy a debt for a reduced payoff amount. A debt
settlement is usually reached when a debtor is unable to fully meet his/her
debt obligations due to financial hardships and attempts by the creditor to
collect on the debt have failed. The creditor agrees to cancel part of the
debt and accept the remaining sum as full repayment. Debt settlement is also
called debt negotiation. Technically speaking, a debt settlement is the
agreement while debt negotiation is the process through which both parties
reach that agreement.
Credit Counseling
Consumers who use debt settlement are those who are experiencing
legitimate financial hardships, cannot afford to repay their debts through
debt management plans offered by consumer credit counseling agencies and who
also want to avoid filing bankruptcy. For this reason, debt settlement falls
between consumer credit counseling and bankruptcy.
Debt settlement programs are provided by third party debt resolution firms
who set up payment plans, and then negotiate settlements on behalf of the
consumer. Typically, debt settlement programs are able to lower monthly
payment contributions to approximately half of the typical minimum monthly
credit card payments, and get consumers debt free in a short period of time.
It is important to select a reputable provider, including a member of an
industry association and a member of the Better Business Bureau (BBB).