Debt Settlement Definition

Debt settlement is an approach to debt reduction which is also known as debt arbitration or debt negotiation. Debt settlement is usually offered by creditors to debtors who appear unable to make routine payments. The creditor seeks to avoid debtor bankruptcy by writing off a large portion of the owed monies-often as much as one-third of the total amount-in exchange for a promise to pay regularly in the future. Debt settlement is always noted on a person’s credit history and is damaging to credit worthiness.