The debt settlement process refers to a method used by individuals or businesses to negotiate and pay off their outstanding debts for less than what they owe. This is typically done through a third-party company that specializes in debt negotiation, also known as a debt relief agency.
The process begins with the individual or business hiring the services of a debt settlement company. The company then contacts the creditors on behalf of their client and attempts to negotiate a lower payment amount. This can involve offering a lump sum payment or setting up a payment plan that is more manageable for the borrower.
Once an agreement has been reached, the debt settlement company will distribute the funds to the creditor in full satisfaction of the debt. The remaining balance is then forgiven by the creditor and the individual's credit report reflects the settled account as paid.
The goal of the debt settlement process is to provide individuals or businesses with a fresh financial start, free from the burden of outstanding debts. However, it should be noted that this method can have negative effects on one’s credit score and may result in tax consequences if the forgiven debt exceeds certain limits.