With the rising financial strain on many consumers, arrears in repaying outstanding debt can prove to be overwhelming. As job losses and rising retail prices take its toll on the average citizen, debt settlement may be a viable option for many of us with mountains of debt. Debt settlement is essentially an agreement to rearrange debt repayments in a manner that is easily manageable for the debtor (person servicing the debt) and acceptable to the creditor (person or institution that is owed the outstanding amount).

Debt settlement should be considered if one is in arrears in their debt repayment. Be it credit card debt, personal loan, home mortgage or store accounts, debt settlement may be the sole option for many cash strapped consumers in these tough times. Debt settlement is an option to avoid bankruptcy or prevent your personal details from being ?blacklisted? on the credit bureau. When a debtor does not service their debt as per the loan agreement, most creditors will begin to pressurize the debtor with regards to the outstanding amount. From stern phone calls to harsh letters, the debtor may find themselves overwhelmed if they are not able to manage the debt repayments. Many creditors will opt to hand over the collection process to a debt collection agency which can affect one's credit rating, salary or personal possessions. A debt collection agency often costs both the debtor and creditor additional charges for the collection process. For this reason many creditors are hesitant to hand over the outstanding account to a debt collection agency.

If you are in a position where you are unable to service your current debt, it may be advisable to discuss you predicament with your creditor. Debt settlement may very likely be the viable option for both you and the creditor without further charges being levied by a collection agency. Debt settlement allows the debtor some leeway with regards to their debt repayment as the creditor may agree to reduce the regular repayment amounts by up to 60%. However the debt repayment term will often be increased until the full amount is settled. If you are more than 3 months in arrears with your debt repayment, your creditor is threatening to file a lawsuit or has stated their intention to hand your account to a debt collection agency, it may be advisable to opt for debt settlement. It is often forgotten that creditors are financial institutions that are run by people who can identify with the tough economic situation and sympathize with personal financial predicaments. Rather than avoiding the creditor's phone calls or letters, it may be more feasible to sit down with your creditor and discuss the option for debt settlement.

You may choose to deal with your creditors directly or use a debt settlement arbitrator to handle your debt settlement. Once a suitable agreement has been reached between you and the creditor, it is essential that you adhere to the new repayment terms and conditions as indicated in the debt settlement agreement. Failure to do so may lead to the creditor considering other options for recovery of the outstanding amount. Do not let your financial constraints cause you to renege on your debt responsibilities as the long term impact of being labeled as a bad creditor can often be worse than just a few harsh phone calls and letters.