Debt settlement is a process by which you can work with a company that will negotiate with your creditors on your behalf. A debt settlement company will take over communicating with your creditors and collecting your payments.  That money will then be held in an account until they have enough to settle your debts. Then the debt settlement company will use that money to pay your creditors. Debt settlement has many advantages.  Your debts can be settled for much less than what you owe in most cases and debt settlement helps you avoid having the stain of bankruptcy on your record.  Lastly, it helps you get your life back on track sooner than other means of debt resolution.

Avoiding Bankruptcy

The primary reason that many people choose debt settlement is to avoid bankruptcy and its long-term ruinous effect on your finances.  Although it does clear away your existing debts, bankruptcy is an extreme solution that can and will follow you for the rest of your life. A chapter 7 bankruptcy filing will remain on your credit report for 10 years, but the consequences can end up with you for life, even after the bankruptcy filing has fallen off your credit report.

Many loans, credit cards, and job applications ask whether you have ever filed bankruptcy.  If you answer no, but you have filed for bankruptcy in the past, and the bank later finds that out, you could be found guilty of fraud or you could be denied for a loan that you were going to use to buy a new home or some other purpose. In the case of an employment application, you could lose your job if your employer finds out you declared bankruptcy but answered no to that question on a job application.

Given that bankruptcy filings are a matter of public record, it is not difficult for a financial institution or existing or potential employer to find out about if you have ever filed bankruptcy.  Settling your debts with your creditors, when done right, can help you avoid filing bankruptcy and dealing with the life-long effects of bankruptcy. Debt settlement will only stay on your credit report for seven years. There is also no public record of you ever having settled your debts, so once the credit reporting time limit has run on your settled accounts, you will not have to deal with the settlement anymore.

Debt Settlement is a Means of Getting Relief from Overwhelming Debts

The goal of debt settlement is not to deceive your creditors into accepting pennies on the dollar for the debt you have accumulated. It is not for someone who has racked up a huge amount of debt with the express intention of not paying it back.  However, debt settlement may be a wise choice if you have debts, but you are struggling to pay them back and want to find a solution that will help you get your financial life back on track.  Once you have negotiated and paid your settlement, you are typically debt-free in less time and at a lower cost than if you had tried to pay off your debts on a typical repayment schedule.  The benefit of debt settlement for your creditors is that they will still get something, versus having those debts wiped out in bankruptcy with the creditors receiving nothing.

Repay Your Debts in Less Time

Under a good debt settlement program, you typically will repay your debts in two to four years depending on the size of your existing debts. This is much less time than you would spend paying back your debts normally if you do not settle your debts. Even debt consolidation and credit counseling have debt repayment periods from three to five years.

Debt Settlement May Be Right for You

Debt settlement is an attractive option if you have incurred substantial debts but want to avoid the stain of bankruptcy on your credit report and the resulting impairment of your ability to get loans or other financing into the foreseeable future.  It allows you to avoid bankruptcy and the long-term effects that a bankruptcy filing can have on your finances.  It also allows you to repay your debts sooner than typically is possible with debt consolidation loans or paying your debts down the conventional way.