Debt Settlement or Debt Negotiation is an aggressive approach to debt reduction. It is appropriate for debtors with a serious amount of debt or who may be considering bankruptcy. A debt settlement company negotiates with the creditors to settle the debt for a lower amount than owed, as the debtor saves their money for a lump-sum settlement payment. After the debt is settled, the creditor will send a letter stating the debt obligation was fulfilled.

Creditors will usually settle for less than owed when the debtor is under serious financial strain because if the debtor chooses to file bankruptcy, then the creditor gets nothing.
Debt Settlement can be a way to eliminate unsecured debt in the shortest amount of time, and with the least amount of money without filing for bankruptcy. However, Debt Settlement can be harmful to a debtor’s credit-rating while they are in the process of settling their debts because creditors will not agree to settle on an account that remains current. The debtor’s credit report will reflect that they are behind in payments until the debts are settled.