Debt settlement is used by debtors who have large amounts of debt as a way to reduce their debt without having to file bankruptcy. It is often a last ditch effort to avoid bankruptcy! A debt settlement is when you negotiate with creditors in order to get a pay-off amount that is less than the total amount owed, and typically has to be paid back all in one lump-sum.
Why would a creditor consider an amount that is less than what you owe them? When you are having extreme financial difficulties, a creditor realizes that your next step is likely to be a bankruptcy. When creditors clients file bankruptcy, they end up receiving no money at all. It is better for the creditors to receive money that is less than the total amount owed than to receive nothing at all for the account, and often, creditors will agree to settle as it is in their best interest to obtain some money even if it is not the full amount owed.
What Does Debt Settlement Do to Your Credit Report?
After a creditor has agreed to settle with you for an amount less than what was originally owed, youll have to send them the amount in a single payment. Once the debt is settled the creditor will...
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