Definition

Debt Settlement is a process of offering a large, onetime payment for an existing balance in order to exempt the remaining debt. It is also known as debt arbitration or credit settlement. With this approach, the debtor and creditor agree on a reduced balance that will be settled in consideration of the payment of large amount of the debt.

Explanation of Debt Settlement

For example, an individual owes $15,000 on a single credit card, and he/she can be approached by the credit card company to settle this debt by offering a one time payment of $10,000. In this regard, the credit card company forgives the remaining amount of debt after receiving the large amount of the debt.It can be done by using the services of a debt settlement company. It happens when the debt holder is unable to pay the entire debt. It is a form of relief, but it is considered as dangerous by some financial experts. The disadvantage of debt settlement is that it hurts the reputation of good debt relief services such as debt management and credit counseling.