What is Debt Settlement?

What is Debt Settlement?

Debt settlement is a third party company service that attempts to decrease the debt you owe by arranging for discounted settlements with creditors and debt collectors. Debt settlement firms can reduce the debt you owe, but this is usually done at the expense of harming your credit. These programs and their services charge fees that could increase your debt. 

Other names for debt settlement firms are debt adjusting and debt relief companies. They operate by talking with your creditors for you to negotiate a lower payment and interest rate. Sometimes they can reduce the total debt you owe or settle your debt for a lump sum amount. 

For these services, they charge a percentage of the total of savings they arrange for you in the debt restructuring. 

Firms which attempt to settle all debts for single lump sum payments will often require you to make routine deposits into an account you control while they negotiate on your behalf. A third party administers this account and the money you save to pay out lump sum settlement payments on your debt. 

Your debt consolidation company may suggest that you stop paying your bills until they reach the settlement arrangement. This can negatively impact your credit as well.

After the debt settlement firm has reached agreement with your creditors and reduced minimally one of your debts, you will have to consent to their terms to make at least one payment to the debt collector or creditor for this settled amount. At this point, the debt settlement firm is able to assess you fees for the services they performed on your behalf. 

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