Debt Settlement: An aggressive form of debt relief which may be appropriate for individuals whose debts total in excess of $10,000. Under a debt settlement program, a settlement company will negotiate with creditors to lower the outstanding balance. This differs from debt management where the credit counseling agency negotiates lower interest rates. What this means for consumers is that if successful, you can walk away paying less than you owe to settle your debt. It is important to note that some creditors will never settle for an amount less than owed and do reserve the right to take legal action against the debtor.
Monthly payments made under a debt settlement program are placed in a settlement fund in anticipation of reaching a settlement with creditors. The funds are not distributed to creditors on a monthly basis as in debt management. You build up a settlement amount in monthly increments, which can be more affordable for the average consumer. One distinction with Debt Settlement is that all of your unsecured debts are eligible for a program, versus debt management, which relies on the established creditor relationships.
Tags: Debt Relief, debt settlement