In other words, debt settlement can also be termed as credit settlement or debt arbitration. Its main feature is reducing the debt by the reduced balance which is considered as the full payment as agreed by both debtor and creditor. The reduced balance is not negotiated by the creditors till the minimum monthly payments are made by the consumers. However, the balance grows when the payments stop due to late fees and also the ongoing interest. There are many ways by which the consumers can arrange for the settlement of debt. They can do so online on websites, or through a lawyer or through debt settlement companies.
Debt settlement involves negotiation with the creditors for reducing the overall debts by paying a lump sum amount. Debt settlement can be considered successful if the creditor is ready to forgive a certain percentage of the total amount of balance. Settlement of debt can be done only for unsecured debts such as medical bills and also the debts associated with credit cards. Debt settlement is a good option for debtors as they can avoid bankruptcy which is associated with the stigma and intrusive court control. At the same time, their debt balance is reduced by a large percentage, in some cases by 50% or more.
If a consumer chooses the path of employing a debt settlement company for the purpose of the settlement of the debt, he needs to have lump sum cash. Or he can build up funds over a certain predetermined time period. For those who don’t have lump sum cash, a trust account of third party is set up by the debt settlement companies. Funds are accumulated in this account for the process of settlement. The process of negotiation with each creditor individually begins once the funds are accumulated. The creditors can hold the accounts or they can be bought by the collections agency, in such case the debt is still negotiable. Consumers can negotiate the settlement of debt themselves.