You may wonder why a creditor would agree to a debt settlement; surely they want their money.  This is true, but not in every case.  Many creditors would rather accept a lower amount than spend the time sending you dozens of collection notices to get the full amount.  They would rather accept a debt settlement of 20-75% of the amount owed as a one-time payment and forget about the rest of the debt.   The creditor then reports on your credit report that the debt has been settled.  Most of the time a creditor will only accept a debt settlement if you are at least three months behind on payments.  No one can guarantee that a creditor will accept a debt settlement but it’s always worth a try.

Debt settlement companies are becoming more prevalent every day.  In the current weak economy, these debt settlement companies are looking to take advantage of the large number of Americans in debt.  The problem is when these companies know they can charge excessive amounts for debt settlement services.  These companies are supposed to help you negotiate with creditors.  Sometimes these companies cannot negotiate debt settlement with all your creditors yet still charge you fees every month.  Be careful and fully investigate any debt settlement company you work with.

Debt settlement is only a good option if you are looking at imminent bankruptcy.  It also isn’t the best option if you qualify for Chapter 7 bankruptcy.  With a chapter 7 bankruptcy most of your unsecured debts are written off so debt settlement is unnecessary.  And also if you qualify for chapter 7 you most likely don’t have the cash flow that debt settlement would require.  Under these circumstances another option, like debt management, may be better for you.

Some consumers decide to purposefully allow their account to get three to six months delinquent in order to negotiate a debt settlement.  If you are good with making your payments this would be a huge mistake.  Debt settlement in these circumstances would only ruin your credit rating and your reputation with your creditors.  However, if you have a legitimate financial hardship that is making it increasingly difficult to make payments on time, then this might be a good option and is a bankruptcy alternative.   Creditors will be more like to accept a debt settlement if you had at least been attempting to pay the debt back.    There are many other options when debt settlement may be right for you, the decision is yours to make.