What a Debt Settlement?

Debt settlement programs are typically offered by for-profit companies and some law firms to help consumers who are unable to repay their unsecured debts as originally agreed or through other creditor-approved repayment options, such as hardship programs or debt management plans. In a debt settlement program, you make monthly payments to the settlement provider instead of directly to your creditors. Those funds are held in a dedicated account until enough money has accumulated for the provider to attempt to negotiate a settlement with one or more of your creditors for less than the full amount owed. During this process, your creditors generally are not receiving payments. As a result, collection efforts continue or increase, and creditors may assess additional interest and fees, report missed payments to the credit bureaus, file lawsuits, or pursue other legal remedies. Not all creditors agree to settle debts, and there is no guarantee that a settlement offer will be accepted.