Debt Relief Option #4: Debt Settlement

Debt Settlement is a relatively new and aggressive approach to debt relief and is ideal for consumers that are truly struggling, or can no longer afford, to make their minimum credit card payments, and also wish to avoid bankruptcy.

Benefits of Debt Settlement

Typically, a reputable debt settlement company can help people that are truly struggling with credit card debt, by representing them in negotiations with creditors to secure settlements of anywhere between 40-60% of the amount of debt owed (at time of enrollment). Of the debt relief options, debt settlement is the least expensive, and shortest in length, with most debt settlement programs averaging between 24-48 months in length.

While debt settlement is an option intended for getting consumers out of debt, not credit repair, one side effect of the process is consumers that graduate from these programs are often more enticing to lenders than people enrolled in credit counseling programs, people with credit card debt, or people that have bankruptcies on their record.

Consumers that can no longer afford to pay their minimum payments, but can afford a debt settlement program, can often times avoid bankruptcy.

Risks of Debt Settlement

Consumers that drop out of a debt settlement program risk being in worse financial shape than when they enrolled in the program. Also, clients enrolled in debt settlement risk litigation from creditors.

As with credit counseling, there are a lot of debt settlement companies that can actually hurt you, rather than help you. It's important to do your research and make sure you select a reputable debt settlement company.

Downsides of Debt Settlement

While enrolled in a debt settlement program, it's typical for FICO credit scores to decline. It's also likely to receive creditor/collection calls.