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Debt Settlement

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Definition: Debt settlement is a way to reduce your debts by paying only a percentage of what you owe. For debt settlement to be successful, your creditors and lenders (the people you owe) must agree to accept a lower amount as satisfaction for your debt. For example, if you owe $1,000, you might negotiate a debt settlement of $500 or 50% of what you owe.

There are two approaches to debt settlement: you can approach your creditors on your own with a debt settlement offer or you can hire a debt settlement company to do the work for you.

Debt settlement can have a negative impact on your credit score because your debts typically must be delinquent before your creditors will accept a settlement offer. In addition, the fact that you didn't pay your balance in full will also impact your credit score.

Also Known As: debt negotiation, debt arbitration

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