{"id":33045,"date":"2025-06-13T19:44:42","date_gmt":"2025-06-13T19:44:42","guid":{"rendered":"https:\/\/site.itshrt.com\/worldnews\/debt-settlement-101-what-it-is-and-how-it-works\/"},"modified":"2025-06-13T19:44:42","modified_gmt":"2025-06-13T19:44:42","slug":"debt-settlement-101-what-it-is-and-how-it-works","status":"publish","type":"post","link":"https:\/\/site.itshrt.com\/worldnews\/debt-settlement-101-what-it-is-and-how-it-works\/","title":{"rendered":"Debt settlement 101: What it is and how it works"},"content":{"rendered":"<p> <script async src=\"https:\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js?client=ca-pub-6606220950177433\"\r\n     crossorigin=\"anonymous\"><\/script>\r\n<!-- ItShrt World News -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:block\"\r\n     data-ad-client=\"ca-pub-6606220950177433\"\r\n     data-ad-slot=\"1882483372\"\r\n     data-ad-format=\"auto\"\r\n     data-full-width-responsive=\"true\"><\/ins>\r\n<script>\r\n     (adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\r\n<br \/>\n<\/p>\n<div id=\"\">\n<figure class=\"embed embed--type-image is-image embed--float-none embed--size-medium\">\n<p>      <span class=\"img embed__content\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/assets2.cbsnewsstatic.com\/hub\/i\/r\/2025\/06\/05\/a789c17f-856b-431e-8353-e1e8bacafe37\/thumbnail\/620x413\/f0c5e10ceb6e047def7ba40adcbced99\/gettyimages-1153055629.jpg?v=d2f497bd9339ad99d2e0559414346698#\" alt=\"Debt Settlement handwritten on loan documents. \" height=\"413\" width=\"620\" class=\" lazyload\" srcset=\"https:\/\/assets2.cbsnewsstatic.com\/hub\/i\/r\/2025\/06\/05\/a789c17f-856b-431e-8353-e1e8bacafe37\/thumbnail\/620x413\/f0c5e10ceb6e047def7ba40adcbced99\/gettyimages-1153055629.jpg?v=d2f497bd9339ad99d2e0559414346698 1x, https:\/\/assets3.cbsnewsstatic.com\/hub\/i\/r\/2025\/06\/05\/a789c17f-856b-431e-8353-e1e8bacafe37\/thumbnail\/1240x826\/9fb88131d46635955cfbb562ae50fe09\/gettyimages-1153055629.jpg?v=d2f497bd9339ad99d2e0559414346698 2x\" loading=\"lazy\"\/><\/span><figcaption class=\"embed__caption-container\">\n<p>                  <span class=\"embed__caption\">Settling your debt for less than what&#8217;s owed can offer big relief, but you need to know what you&#8217;re getting into first.<\/span><\/p>\n<p>                  <span class=\"embed__credit\"><\/p>\n<p>                Getty Images\/iStockphoto<\/p>\n<p>                          <\/span><br \/>\n              <\/figcaption><\/figure>\n<p>Today&#8217;s high prices probably aren&#8217;t going away \u2014 and neither is the debt that many people have accrued because of them. Even\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/cpi-report-today-april-2025-inflation-trump-tariffs\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">as inflation cools<\/a><\/span>\u00a0compared to last year, the cost of essentials like housing, groceries and insurance remains stubbornly high. For many Americans, that&#8217;s translated into stretched budgets, along with\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/heres-how-much-credit-card-debt-the-average-american-has-and-how-to-pay-it-off\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">bigger credit card balances<\/a><\/span>, more personal loans and a growing sense of financial anxiety.<\/p>\n<p>At the same time, interest rates on borrowing products, like loans and credit cards, are still elevated, which makes it harder to dig out once you&#8217;ve fallen behind. For example, the \u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/why-credit-card-rates-are-so-high-now-what-to-do-about-it\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">average credit card rate<\/a><\/span>\u00a0is closing in on 22% right now, and many cardholders are stuck with much higher rates. And, with\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/credit-card-delinquencies-are-rising-ways-to-pay-off-what-you-owe\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">delinquencies on the rise<\/a><\/span>\u00a0across multiple types of consumer debt, more borrowers are starting to ask the hard question: What do I do if I just can&#8217;t afford to pay it all back?<\/p>\n<p>One potential answer is <span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/important-facts-to-know-about-debt-settlement-according-to-experts\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">debt settlement<\/a><\/span>, which is a strategy that allows you to negotiate with your creditors to pay less than what you owe. But while it can offer relief, it also comes with serious trade-offs, so it&#8217;s important to know what you&#8217;re getting into before you enroll.<\/p>\n<p><a href=\"https:\/\/secure.money.com\/pr\/t6aa78ffcdbb?s1=https%3A%2F%2Fwww.cbsnews.com%2Fnews%2Fdebt-settlement-101-what-it-is-and-how-it-works\" target=\"_blank\" rel=\"nofollow, sponsored, noopener\">Find out how to start the debt settlement process today<\/a>.<\/p>\n<h2><strong>Debt settlement 101: What it is and how it works<\/strong><\/h2>\n<p>Here&#8217;s a closer look at how debt settlement works, when it makes sense and what to consider before going down this path.<\/p>\n<h3><strong>What is debt settlement?<\/strong><\/h3>\n<p>Debt settlement is a process where you\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/how-to-negotiate-with-your-credit-card-company\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">negotiate with your creditors<\/a><\/span>\u00a0to pay less than the full amount you owe. It typically applies to unsecured debts \u2014 like credit cards,\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/how-to-qualify-for-medical-debt-forgiveness\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">medical bills<\/a><\/span>\u00a0or personal loans \u2014 and is often used as a last resort when a borrower can&#8217;t afford to pay off their debt in full.<\/p>\n<p>Unlike\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/debt-consolidation-what-is-how-does-it-work\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">debt consolidation<\/a><\/span>, which combines your debts into one manageable loan, debt settlement is focused on reducing your balances outright. The goal is to settle for a lump-sum payment that&#8217;s less than what you owe, often by working with a professional\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/what-to-look-for-in-a-debt-relief-program\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">debt relief company<\/a><\/span>.<\/p>\n<p><a href=\"https:\/\/secure.money.com\/pr\/t6aa78ffcdbb?s1=https%3A%2F%2Fwww.cbsnews.com%2Fnews%2Fdebt-settlement-101-what-it-is-and-how-it-works\" target=\"_blank\" rel=\"nofollow, sponsored, noopener\">Speak to a debt relief expert about how to deal with your debt now<\/a>.<\/p>\n<h3><strong>How the debt settlement process works<\/strong><\/h3>\n<p>The typical debt settlement process takes a few years and <span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/how-does-credit-card-debt-forgiveness-work\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">looks something like this<\/a><\/span>:<\/p>\n<ul>\n<li>You stop making payments to your creditors. Instead, you start setting aside money in a dedicated, FDIC-insured bank account.<\/li>\n<li>Over time, this money builds up while your accounts fall into delinquency. This is part of the strategy, as most creditors won&#8217;t negotiate a settlement for less than what you owe unless you&#8217;re already delinquent.<\/li>\n<li>The debt relief company negotiates with your creditors on your behalf to reduce your balances. If a creditor agrees, you&#8217;ll be asked to also approve the agreement, and money from your dedicated account is used to pay the settled amount.<\/li>\n<li>Once the debt is settled, the account is marked as &#8220;settled&#8221; or &#8220;paid for less than the full amount&#8221; on your credit report.<\/li>\n<\/ul>\n<p>The entire process typically <span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/how-long-does-credit-card-debt-relief-take\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">takes 24 to 48 months on average<\/a><\/span>, depending on how much debt you have and how much you&#8217;re able to save.<\/p>\n<h3><strong>Who is debt settlement for?<\/strong><\/h3>\n<p>Debt settlement is <span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/who-qualifies-for-credit-card-debt-forgiveness\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">usually best suited for<\/a><\/span> people who:<\/p>\n<ul>\n<li>Have at least $7,500 to $10,000 or more in unsecured debt<\/li>\n<li>Are already behind on payments (or are about to fall behind)<\/li>\n<li>Can&#8217;t realistically pay off their debt in full, even with a reduced interest rate<\/li>\n<li>Are willing to accept a hit to their credit<\/li>\n<\/ul>\n<p>That said, debt settlement is generally not a good fit if you have mostly secured debts like a mortgage or auto loan, or if you&#8217;re keeping up with your payments and just looking for a more affordable solution. In those cases,\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/what-credit-counseling-can-and-cant-do-to-help-with-your-debt\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">credit counseling<\/a><\/span>\u00a0or consolidation may be a better route.<\/p>\n<h3><strong>Benefits of debt settlement<\/strong><\/h3>\n<p>Debt settlement can offer real advantages \u2014 especially for borrowers who have exhausted other options. Here are some of the key benefits:<\/p>\n<ul>\n<li><strong>You could pay significantly less than what you owe.<\/strong>\u00a0In successful cases, creditors generally agree to\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/what-is-the-lowest-amount-debt-collectors-will-settle-for-what-experts-say\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">accept 30% to 50% less<\/a><\/span>\u00a0than the original balance (before fees) on average \u2014 and in certain cases, they may accept even less. That can equate to thousands of dollars in forgiven debt.<\/li>\n<li><strong>You could avoid bankruptcy.<\/strong> Debt settlement may be a less damaging alternative for those on the brink of <span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/how-much-debt-is-worth-filing-for-bankruptcy\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">filing for Chapter 7 or Chapter 13 bankruptcy<\/a><\/span>. It allows you to resolve your debts without the long-term consequences bankruptcy can have on your credit and financial future.<\/li>\n<li><strong>It offers a faster path to resolution.<\/strong> Debt settlement typically takes two to four years, which expedites the process compared to slowly chipping away at minimum payments for years (or decades). Once the settlement is paid and finalized, the debt is considered resolved.<\/li>\n<li><strong>You make one monthly deposit rather than juggling multiple bills.<\/strong> When working with a debt settlement company, you&#8217;ll make a single monthly deposit into a dedicated account. This can be easier to manage than juggling multiple minimum payments across various debts.<\/li>\n<\/ul>\n<p>Just remember that these benefits only apply when the process goes well and you stay committed to your program by making deposits into your dedicated account. <\/p>\n<h3><strong>Debt settlement risks and consequences to consider<\/strong><\/h3>\n<p>Debt settlement can offer significant savings, but it&#8217;s not without its downsides, which include:<\/p>\n<ul>\n<li><strong>Credit damage:<\/strong>\u00a0Because the process involves stopping payments,\u00a0<span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/does-credit-card-debt-forgiveness-hurt-your-credit-score\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">your credit score<\/a><\/span>\u00a0will typically decrease. Accounts marked as &#8220;settled&#8221; can also be treated negatively until the account ages and falls off your credit report.<\/li>\n<li><strong>Fees:<\/strong> Most debt relief companies charge fees of between <span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/how-much-does-a-debt-relief-program-cost\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">15% to 25% of the enrolled debt<\/a><\/span>.<\/li>\n<li><strong>No guarantees:<\/strong> Creditors are not obligated to settle. Some may refuse or even escalate collections or lawsuits.<\/li>\n<li><strong>Tax consequences:<\/strong> The IRS may consider forgiven debt as <span class=\"link\"><a href=\"https:\/\/www.cbsnews.com\/news\/how-does-credit-card-debt-forgiveness-impact-your-taxes\/\" target=\"_blank\" data-invalid-url-rewritten-http=\"\">taxable income<\/a><\/span>. So, if you settle a $10,000 debt for $4,000, the $6,000 forgiven may be reported as income.<\/li>\n<\/ul>\n<p>Still, for people overwhelmed by debt and without other realistic options, these risks may be worth it for the chance to resolve what they owe and start fresh.<\/p>\n<h2><strong>The bottom line<\/strong><\/h2>\n<p>Debt settlement isn&#8217;t a quick fix or a perfect solution, but for some borrowers, it can be a way to avoid bankruptcy and dig out of overwhelming debt. If you&#8217;re considering debt settlement, though, you should also be sure to weigh your other options first, like credit counseling or even negotiating directly with creditors. And, if you do decide to go this route, it&#8217;s important to work with a reputable company, stay informed and make sure the potential benefits outweigh the trade-offs.\u00a0<\/p>\n<p>    <!-- tags --><\/p>\n<div class=\"content-author\">\n      <a href=\"https:\/\/www.cbsnews.com\/team\/angelica-leicht\/\" class=\"content-author__name\" data-invalid-url-rewritten-http=\"\">Angelica  Leicht<\/a><\/p>\n<div class=\"content-author__bio\">\n<div class=\"content-author__full-information\">\n<p class=\"content-author__text\">Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p><script async src=\"https:\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js?client=ca-pub-6606220950177433\"\r\n     crossorigin=\"anonymous\"><\/script>\r\n<!-- ItShrt World News -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:block\"\r\n     data-ad-client=\"ca-pub-6606220950177433\"\r\n     data-ad-slot=\"1882483372\"\r\n     data-ad-format=\"auto\"\r\n     data-full-width-responsive=\"true\"><\/ins>\r\n<script>\r\n     (adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\r\n<br \/>\n<br \/><a href=\"https:\/\/www.cbsnews.com\/news\/debt-settlement-101-what-it-is-and-how-it-works\/\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Settling your debt for less than what&#8217;s owed can offer big relief, but you need to know what you&#8217;re getting<\/p>\n","protected":false},"author":1,"featured_media":33046,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[32],"tags":[],"class_list":["post-33045","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-top-stories"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Debt settlement 101: What it is and how it works - World News<\/title>\n<meta name=\"description\" content=\"If you&amp;#039;re drowning in debt and can&amp;#039;t see a way out, debt settlement might be a lifeline, but it&amp;#039;s not risk-free.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/site.itshrt.com\/worldnews\/debt-settlement-101-what-it-is-and-how-it-works\/\" \/>\n<meta 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