Many people who select a debt settlement program may have already tried credit card consolidation in an effort to resolve their financial difficulties, but may not have been satisfied with the arrangements or the amount of time it was taking to pay off what they owed. For these individuals, debt settlement may provide a faster way to eliminate their debts for the least possible amount of money, while avoiding bankruptcy court. It has quickly become one of the preferred debt remedy solutions.



The process of debt settlement or credit card debt settlement involves negotiating a lower payoff amount to resolve the outstanding debt owed to a creditor. Typically, debt settlement should be considered a course of action only for those individuals under extreme financial distress, who are having difficulty meeting even basic financial obligations.

When considering debt settlement as an option for reducing credit card debt, remember that there is no guarantee that an original creditor or even a collector will settle for less than the full amount owed. Some attorneys acting as collectors may be particularly difficult to settle with. Larger collection agencies are often easier to negotiate a reduced settlement with.

There are many reasons to try to settle your debts through debt settlement. There are also many reasons not to go this route for your debt remedy solution. To make sure you are prepared for what may come, here are some of the ?pros? and the ?cons? of credit card debt settlement. Remember that the more you know before you start this process, the better off you will be.

The ?Pros?

■You may be able to settle your credit card debts for pennies on the dollar, potentially saving you thousands of dollars in the long run.

■Your unsecured debts may be resolved within months or even a few years, freeing up your cash flow much more quickly than long-term credit card consolidation programs.

■The monthly commitment amount designed by debt settlement services is almost always significantly less than credit counseling debt management programs, and debt consolidation loan payments. This gives you much needed breathing room for household and fixed obligation expenditures.

■The credit card debt settlement process, as such, will not appear on your credit record, and your accounts will eventually be marked as "paid" or "settled." (See the ?cons? for the other side of this coin.)

■The effects of settlements on your credit rating/FICO score will drop off more quickly than a bankruptcy would (a bankruptcy discharge remains on your credit report for up to 10 years).

The ?Cons?

■While your payments are being withheld from the creditors, you may receive harassing calls from your creditors and collection agencies. The debt settlement company may request creditors to stop calling, but that does not mean they will honor those requests.

■Late fees will continue to accrue on your unpaid accounts, piling up and increasing your total amount due. Should your creditors refuse to play the game, you could find yourself in an even greater financial mess than you started with.

■It is possible that your settled debts may be noted on your credit report as ?settled? or ?settled for partial? rather than ?paid in full? which is the most desirable credit report notation.

■ Any savings off the total amount due is reportable to the Internal Revenue Service (IRS) as forgiven debt, which is considered a form of income.

It's usually better to try resolving your own financial issues before opting for a credit card debt settlement program that will likely add further damage to your credit history. There are ways to embark upon your own debt remedy solution without having to contract a professional debt service. However, every individual's financial situation is unique as are the circumstances that created the financial problems. Only you know the details of your financial dilemma and what progress is possible to achieve on your own.