October 01, 2016Debt settlement is a term used when someone has incurred more debt than he or she is able to pay off and attempts to settle their debt with creditors. Too much debt can happen for a number of reasons ranging from bad financial decisions, unexpected medical bills, unemployment or a number of other reasons. Typically, consumers opt to file for bankruptcy protection when their debt amount exceeds what they are able to pay.
As a result, many credit card companies and creditors are open to working out some sort of debt settlement or debt relief plan where they legally accept a lower amount of the entire debt owed. For example, some consumers may be able to settle for as low as say 25% of what they owe by making agreed upon monthly payments. This would mean that if you owed $50,000 in debt, you may be able to only have to pay back $12,500 if you are able to convince your creditors of your hardship. A debt settlement is not a free pass. Your credit is hit and the chances of you getting another credit card will be very slim for anywhere between 3-5 years. The only thing worst than a debt settlement is declaring bankruptcy.