What is debt settlement?

Debt settlement is the process of paying off a debt for less than the original amount, often through an outside debt settlement agency. Outstanding medical bills and credit card debt are two types of debt often settled through this process.

Debt settlement agencies work with the person in debt and the creditor to reach a mutual agreement on the amount that needs to be paid to settle the debt. The amount usually is considerably less than the original debt amount. The agency sometimes pays off the amount agreed upon and sets up a payment plan for the person responsible for the debt.