A lot of people and companies use debt to purchase assets and other items that they want or need. As long as the item purchased is providing more value than the additional interest which needs to be paid, it is a smart debt. If the item is not providing an equal amount of value, then it is a poor debt.

A lot of people end up taking loans for items that do not provide equal value and find themselves in a debt trap. While it is important to understand why you actually fell in the trap it is also helpful to understand the process of settling your debts so that you can do so more effectively.

Debt Settlement is an agreement whereby you agree to pay a portion of the debt, in exchange for the entire debt to be satisfied. This happens through the debt negotiation process when a creditor has been unsuccessful in recovering his dues and the debtor, due to financial or other difficulty, has been unable to pay such dues.

Most people don't realize that creditors are often willing to settle for (a lot) less than the actual debt amount. The reason is that they otherwise would have to pay high commissions of up to half the amount recovered to collection agencies. Further, in many cases the collection agencies are unable to recover any amount and therefore are liable to lose the full amount owed. By settling for less, they receive that much more.

Debt settlement is done by people facing legitimate financial difficulties. They are unable to repay their debts through various debt management plans offered by consumer credit counseling agencies and at the same time are not willing to file or bankruptcy.

Debt Settlement services are offered by third party debt resolution companies who first set up the payment plans. They then negotiate with the creditor certain amounts of dues to be paid by the customer. Most debt settlement companies are very experienced and able to get the credit card companies to dramatically reduce dues and have the loan repaid in a lesser period of time. They are able to do this because they can convince the creditors that this is their only chance that they will get paid anything otherwise they will not receive anything at all.