Debt settlement is an attractive option for many people in debt because it's a relatively quick way to get the process started, and there's some obvious appeal to paying less. The way it works is that a family, individual or business that is carrying large amounts of unsecured debt will work with their creditors (or have someone do it on their behalf) in order to come to an agreement that the debtor will pay back a percentage of the debt to satisfy it rather than the whole amount.
Creditors will often accept settlement offers for a variety of reasons. These include:
While all this may sound good, don't forget there are negative consequences to debt settlement.
Another potential risk is that during the negotiation process that creditors can turn around and sue the debtors for all debts owed. This is why it's important to make sure you have proper contracts and communications with the creditors and or good representation.
The ideal situation for debt settlement is someone that has high amounts of unsecured debt, a steady income and debt that has been lingering for an extended period of time. If debtors qualify they still might be better off filing chapter 7 bankruptcy, but due to recent changes in the law this option is no longer possible for many people and they are forced to file for chapter 13 bankruptcy. This is a whole new ball game, as chapter 13 bankruptcies can be complicated and can take years to complete.
People who can make the minimum payments by simply budgeting better will be rejected for settlement most of the time, so they would be better off looking at a credit counseling service.
Those will relatively small debts probably don't want to bother with a settlement option, as the negative effects outweigh the benefits in this situation. They too would be better off working out a payment plan with the creditor and maybe some credit counseling.
Everybody's situation is different, so the best thing you can do is research your options as much as possible and then sit down and speak to some experts. Most bankruptcy and settlement companies do offer free consultations where they will go over your entire situation and explain what your options are.