Debt settlement is a process where a company negotiates on the borrowers’ behalf with creditors to reduce the overall debts in exchange for an agreement upon which regular payments will be made. The debt settlement process can include credit card debts, medical bills in collections, department store cards, signature loans, unsecured lines of credit, and revolving charge accounts. Debts that cannot be included in a debt settlement are student loans, auto loans, and mortgages.

The debt settlement process is initiated when an agreement is signed between the borrower and the debt settlement company. From that point forward the borrower makes a single payment to a trust or escrow account where funds accumulate over time. Payments are not made to creditors during this accumulation period. Once enough funds are gathered the debt settlement company begins negotiations with creditors. Credit card companies, under the assumption that they might not be paid at all, are normally willing to enter negotiations and usually accept steeply discounted payoffs.    

Debt settlement offers a host of advantages over other alternatives available to people over-burdened by debt. A typical debt settlement can reduce the amount a borrower owes by 40 to 60%. The time it takes to complete a debt settlement process depends on the amount a borrower can pay on a monthly basis. The amount of time for payoff can range from 18 to 48 months. At the end of the process the borrower will have paid off the reduced amount on each credit card and loan in full. A borrower making minimum payments on the same debt, but without debt settlement, would pay many times over the amount paid in a debt settlement. Additionally, a full payoff would take twenty to thirty years. Credit counseling can reduce a consumer’s interest rates but will leave the total amount owed intact, resulting in a longer and more expensive payoff.  Debt settlement also compares favorably to filing bankruptcy, which can stay on a person’s credit report for up to ten years. Bankruptcies also subject those who file for them to public stigma and intrusive court-mandated controls on budgeting and spending.

The quality of your debt settlement is directly related to the quality of the company that is negotiating on your behalf. Be sure that your debt settlement company is accredited by The Association of Settlement Companies (TASC). Be sure to ask enough questions that you are knowledgeable of and comfortable with the process of debt settlement. Then, make your decision. With the right company on your side, debt settlement can get you on the path out of debt and on to a fresh start.