Like a hatch full of rabbits, debt has a way of multiplying. What begins with a credit card bill or two can soon turn into an overwhelming amount of money owed. Before you know it, debt is a vicious monster you can’t conquer on your own. This is where debt settlement can help.

What is Debt Settlement?
Sometimes referred to as debt negotiation, debt settlement is a process that can actually save you money by reducing the amount of debt you owe.  By following ethical guidelines, and employing legal know-how, debt settlement companies literally talk your creditors into accepting a smaller payment.

On your own, bankruptcy or a high-interest consolidation loan may be the only roads to trek down. These roads can often turn dangerous, leaving you with poor credit or in an even greater amount of debt. But, with help from a debt settlement company, you can stroll down an easier road, one that will save you financial, legal, and emotional hassles.

How does Debt Settlement work?
Though it may seem confusing, the way debt settlement works is actually fairly simple. Once you hire a debt settlement company, you will no longer pay monthly bills to your creditors. Instead, you will start putting money into a separate savings account.

This account, referred to as a settlement account, typically involves payments lower than what you would normally pay your creditor. For instance, if you owe a minimum payment of $100 to VISA each month, you might put only $70 a month in your settlement account.

Once the money in your settlement account begins to add up, your debt settlement company comes in to negotiate on your behalf. Acting as your advocate, they work with your creditors to negotiate a reduction in debt.

Let’s say, for example, that you owe $5,000 to MasterCard. After your debt settlement company works their negotiating magic, MasterCard may agree to allow you to pay only $3,500. Thus, after your settlement account reaches $3,500, the money is turned over to MasterCard and your account is considered paid in full. You no longer owe MasterCard anything.

This same process repeats with each creditor until all of your accounts are settled, paid in full, and closed.

How can Debt Settlement help me?
Debt settlement companies are filled with negotiators, people who know how to fight creditors fairly. In some circumstances, debt settlement companies can reduce your debt by as much as 70 percent. They can also get you debt free in as little as twelve months.

A debt settlement company also takes away the every day hassle of creditor calls and letters. By acting as the liaison between you and your creditor, your debt settlement company fields all calls, all letters, and all forms of communication. This takes a great load off your shoulders and allows you to do something you might not have done in years: relax.

Why does Debt Settlement work?
Creditors understand that they often have two choices: accept a partial payment or, if you are forced to declare bankruptcy, accept no payment at all. This makes them particularly inclined to accept the partial payment offer.

Creditors also understand that - through a debt settlement company - they can recover more debt owed than they can through other collection methods. What they don’t recover, they can use as a tax write-off. Thus, debt settlement companies often are the best avenue to take for both the person in debt and the creditor.

What type of debts can be settled?
Debt settlement can be used to eliminate credit card debt, medical bills, department store credit card debt, personal loans and lines of credit, and personal student loans. In short, debt settlement can be used to eliminate most types of unsecured debt.

Will Debt Settlement affect my credit?
Enrolling in a debt settlement program may make your credit rating slightly worse before it gets better. This is because you voluntarily stop making monthly payments to your creditors in order to accumulate funds in a “settlement” account.

The adverse affect on your credit is often short lived and minimal. A good debt settlement company can help curtail this impact to your credit profile.

But, don’t let a few points on your credit rating deter you from using a debt settlement company. First of all, your credit score might not be affected at all by debt settlement. If you are in poor standing, routinely making partial or late payments, your credit rating isn’t going to be strong anyway. A debt settlement company may only improve it.

Even if your credit rating is stellar, there is little point in maintaining a great credit rating while being in debt up to your eyeballs.  If you try to settle your debt on your own, you could be forced into bankruptcy or wage garnishment, and your good credit rating will take a much bigger hit than any debt settlement company could throw.

Rest assured, your credit score will begin to rebuild itself once your debts are all settled.

A large portion of your credit score depends upon your debt balances. So, once you eliminate your debt, your credit rating will have nowhere to go but up.

Do I have to pay taxes on the money I save?
The chances of you having to pay taxes on the amount of money you save by using a debt settlement company are very slim. This is because the IRS allows “insolvent” taxpayers to exclude canceled debts.

You are considered insolvent if you owe more than you own. In other words, if you have a negative net worth you are “insolvent.”

In the unlikely event that you do have to pay taxes for the money you saved, the amount would be very small comparably. In a nutshell, a debt settlement company will save you more money than the IRS would ever make you pay.  Thus, a debt settlement company - even with taxes - is still financially beneficial for you to join.

How much does Debt Settlement cost and how long does it take to settle my debts?
This really depends upon your debt situation and the debt settlement company you hire. Different debt settlement companies charge different rates. Similarly, the time it takes to settle your debts will differ as well.

Debt settlement is a good way for the financially strapped consumer to free themselves from debt. It allows people to avoid the devastation of bankruptcy while minimizing the stress of overwhelming bills. For many, it is the first brick in the road to financial freedom.