Source: Federal Trade Commission (Facts For Consumers)
Debt Settlement is the fastest and least expensive option to get out of debt without filing bankruptcy. Also known as debt negotiation, debt settlement is an ambitious approach to debt reduction for debtors experiencing the strains of too much debt and has considered bankruptcy as an option. Debt settlement companies will negotiate with the creditors on behalf of the client to settle for an amount much less than the balance owed. In return, the debtor will make a settlement payment for the balance owed. Once the debt has been paid in full on the settled amount, the creditor will issue a letter to the credit bureaus stating the debt has been "Paid", "Settled", and/or "Settled for less than full amount." Creditors are usually willing to settle the balance of debt owed if the debtor is under a financial hardship. If the debtor chooses to file bankruptcy, then the creditor would receive nothing, therefore, it is their desire to get some payment towards the balance owed.
