Debt Settlement

Debt settlement is the rising style of debt program. According to one federal official, a creditor saw a 700 percent rise in contacts with debt settlement agencies over the course of one recent year. 

Typically in debt settlement, a person opens an account with a debt settlement company to repay delinquent debts. The debtor puts regular savings into the account and waits until it holds enough money to negotiate a settlement with the creditor. When that time comes, the debt settlement company then mediates a settlement on the debt with the creditor. The debtor decides whether or not to accept that settlement.  

When completed successfully, debt settlement can be a quick and inexpensive way to rise out of your debt, potentially helping to save you thousands of dollars and having you out of debt in as little as 12 to 36 months. The more quickly a debt is settled, the more quickly a person can start to repair any damage to his or her credit rating. 

On the downside, debt settlement can leave a ding on your credit. On your credit report, the debt will be marked “paid by settlement,” which will indicate the debt was paid at less than the full amount. Second, a debt settlement company cannot stop collection efforts, and a creditor can still take legal action against you.