Debt Settlement
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Debt Settlement is a process used to reduce debt in which the debtor and creditor agree on a reduced balance to be paid either by lump sum or in payments over a set timeframe. Once the agreed amount is paid in full, the creditor considers the debt satisfied. Consumers can hire a lawyer to act on their behalf to reach an agreed settlement with a creditor.

Creditors are not usually willing to negotiate a debt settlement if the consumer is current on monthly minimum payments as it offers little benefit to the creditor. If the account has become delinquent however, due to nonpayment or late payments, the balance will continue to rise due to late fees and accrued interest and the creditor may accept settlement arrangements so that the account can be closed and any uncollectable balance written off for tax purposes.

When a debt is charged off by a creditor, it may be sold or assigned to a third party collection company for a fraction of the total debt balance. Such collection companies then attempt to collect the debt from the account holder. Typical debt settlements may range from 25% to 65% of the outstanding balance owed. Only unsecured debts, which are those not secured by collateral such as a home or car can be settled. Debt settlement may be a good option for consumers that either do not qualify for a bankruptcy, for reasons including income levels, nonexempt assets or debt limits; or do not wish to file a bankruptcy case.