May 6, 2024

Debt Settlement Definition: The Basics For Financial Freedom

what is debt settlement

Do you hope to be debt-free in the future? Now, give up on waiting and make this day your “someday”! In fact, debt settlement makes this feasible. But what is debt settlement and how does it work? Gaining control of your finances requires an understanding of its fundamentals. 


We’ll discover the definition of debt settlement in this blog post and give you some crucial information. Let’s go deeply into the field of debt settlement and begin laying the foundation for a future devoid of debt.

evaluate your financial situation


What is Debt Settlement?


In essence, debt settlement is an agreement between you and the creditors. It occurs when you are unable to repay the entire debt. You attempt to negotiate a lower payment schedule with your creditors rather than declaring bankruptcy. Generally, a debt settlement company will represent you in negotiations with your creditors and assist you in negotiating on your behalf.

negotiating with your creditors

Want to take a further look at what debt settlement is? Here’s a general idea of what it could look like for you:


  • You talk to a debt settlement company about your money situation.
  • They might suggest you stop paying your creditors directly and instead send payments to them, but at a lower rate.
  • The money you send them goes into a special account.
  • Once there’s enough money in that account, they start talking to your creditors to settle your debts.
  • If they reach a deal, they take some of the money in the account as their fee and use the rest to pay off your creditors. 
  • If all goes well, you’re right on track to being debt-free!


Now, we mentioned before that this is a great option if we don’t want to declare bankruptcy. But why is it so bad and what’s the difference between debt settlement and bankruptcy?


What is Debt Settlement and It’s Difference With Bankruptcy


Bankruptcy and debt settlement are two different ways to get relief from overwhelming debt, but each has its own drawbacks. By submitting a petition to a bankruptcy court, one can obtain debt relief through the legal procedure of bankruptcy. Mainly, there are two kinds:

  • In Chapter 7 bankruptcy, non-exempt assets are liquidated in order to pay creditors, and the majority of unsecured debts are eliminated. But some obligations, such as school loans, are usually not dischargeable.


  • Chapter 13 Bankruptcy: Permits debt restructuring and sets up a repayment schedule spread out over a number of years, following which any outstanding unsecured obligations may be eliminated.


Although filing for bankruptcy gives you a fresh start, it also has long-lasting effects that can impair your creditworthiness, job opportunities, and credit record for seven to ten years.


debt settlement vs bankruptcy

Now, what is debt settlement? This entails bargaining with creditors to lower the entire amount owed. In order to gain power in talks, this strategy frequently involves withholding payments to creditors and letting accounts fall past due. Afterward, a debt settlement business or specialist tries to negotiate lump-sum payments with creditors, usually for less than the entire amount due. After resolving the dispute, you pay the agreed-upon sum, and the remaining obligation is discharged.


Both alternatives offer ways to manage debt, but it’s important to know the ramifications of each and select the one that best suits your goals and financial circumstances.


Debt Settlement With Mediator Debt Solutions


So, what have we learned today? What is debt settlement? In basic terms, debt settlement can be your ticket out of debt and a step towards financial freedom. But don’t just trust any debt settlement company, trust Mediator Debt Solutions. Why? Well we provide a kind and efficient route to financial recovery. It may seem easier to avoid your financial difficulties but, we want to tackle them with you. 


By selecting us, you get the best of the best when it comes to debt settlement. Choose morally righteous and truthful debt relief instead of the hassles and media attention that are frequently connected with filing for bankruptcy. Our strategy puts your financial security and sense of dignity first, so you can face challenges head-on and bounce back from setbacks.

settling your debt

You may rely on Mediator Debt Solutions to help you through the difficulties of debt settlement with compassion, knowledge, and continuous support. With MDS as your dependable partner, you may embark on your financial liberation path together toward a better tomorrow.