Settling Debt

Kelly Ann Butterbaugh

In times of economic stress, people turn to seemingly simple methods for erasing debt and lessening the monthly stress of bills. One of these relief options is debt settlement. Debt settlement is a promising carrot hanging before an overwrought consumer. It's the promise that if the consumer can reach the carrot, 40-75% of his/her debt will be forgiven by the credit agencies. That's a nice prize, if one can reach it.


What Is Debt Settlement?

Debt settlement also goes by the moniker "debt negotiation." Doing exactly what its name claims, it benefits the creditor in that the company receives the majority of its money back and benefits the consumer by relieving a portion of the debt owed. It's not a "get out of jail free" option, however. The negotiation will take months, and it's a risky business.

For those interested in a debt settlement company that works on behalf of the consumer to settle the debt, there's risk there as well. There's risk in finding a reputable company that will do just what it says, and these companies will charge 25-35% of the forgiven total, meaning that the consumer is really only forgiving 15-25% of the original debt.

Who Qualifies?

Creditors will not consider debt settlement unless a person is at least three months behind on payments, preferably six. In order to qualify, the consumer must stop payments to the company, banking what would be the monthly payments for the future payoff. Then, negotiations begin. Ultimately, the creditors want all of their owed money, so they will be tough in negotiations.


What's the difference between debt negotiation and bankruptcy?

The main difference is that debt negotiation doesn't involve the court. There is no risk of losing your home to pay off a bankruptcy, but you will have to pay off the settled debt. You will also be charged a COD, cancellation of debt, tax on your yearly taxes.

While credit companies are at first unwilling to negotiate debt, they would rather a consumer negotiate than file for bankruptcy. When a consumer files for bankruptcy, the credit companies get paid none of the owed amount. In debt negotiation, they receive an agreeable portion of the total.

Another difference is that only smaller loans such as credit card debts, personal loans, and medical bills qualify. Larger loans such as mortgages and fees such as child support and taxes cannot be forgiven.

A pencil eraser that is erasing the word "Debt"

About The Author: Kelly Ann Butterbaugh is a freelance writer who regularly contributes to a variety of magazines and has written a history book for middle readers. Visit her website for writing help, lesson plans, history fun, or work for hire at

March 7, 20100 found this helpful

My Dad renegotiated for my sister with several creditors, and I've done it for a friend. Get your most intelligent or most persistent friend to make some calls for you. Have them explain the situation and ask for the best deal the creditor can extend, the alternative being default or bankruptcy (if such is the case.)

Be very careful of these debt consolidation companies. Many are crooks and will take your money and not pay your debts. I think it is criminal that they advertise as though this were an easy out. Your credit will be destroyed for one thing, and that will raise the price of car insurance and many other things.

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March 7, 20100 found this helpful

Really! You didn't get into debt overnight so why would one think they can get out of debt easily? Debt consolidation companies are scams. If you are desperate for help, contact the credit card companies directly and negotiate your own settlement. And don't be foolish enough to believe you can "erase debt". It will follow you on your credit report.

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March 7, 20100 found this helpful

Hi - I believe you can get help with lower payments if you go to one of the non-profit debt help sites. Just be sure to check them out. They will not negotiate a smaller debt - just a smaller payment. Most of the time your interest and late payment stops and you have a certain amount of time to pay them off.

Most of this can be done over the internet - just look for a site that does internet. You have to give them all info and I do mean ALL and they will tell you how much they think you can pay each month towards your bills.

They charge different fees also but usually only about 15 to 35 each month. Check all sites for the best deals. Good luck.

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March 12, 20100 found this helpful

After a family business failed and left us with so much business debt, my husband and I met with an attorney (who practices alone and is very frugal himself) and he recommended negotiating with our creditors directly. He would handle the large or difficult cases.

We stopped paying those creditors and started negotiating several months later. Several contacted me with debt settlements very quickly that were 15 cents on the dollar.

The most difficult part was actually not paying our bills. We had always been responsible and paid our bills. Then we had to deal with the shame that the bill collectors use on you. But we knew that this was the best way to pay something to everyone we owed and still keep our house and cars.

Two years later, we only have a couple of those creditors left and we are saving money to settle with them. It has been a great learning experience. We don't incur more debt now.

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March 17, 20100 found this helpful

Actually beckybd, my parents DID get into debt overnight. My father fell ill and with our current health care system and his government health insurance (thank you for not being regulated) in less than a week he had over $100,000 in medical expenses that just grew for the 12 months he was in the hospital's care. He was not able to work and my mom's salary was not enough cover all their bases. So yes, for some people it is very possible to get into debt overnight. Think before you judge and spout out your holier than thou routine.

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February 12, 20130 found this helpful

It's true I settled $60,000. worth of business debt & the minute I did my credit rating improved. Better than a bankruptcy. I played hardball so bad with them one of them offered me a job! Of course I said no - I have to be able to sleep at night.

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