Debt settlement is a debt repayment strategy where you negotiate with your creditors to accept a partial payment as full satisfaction for the debt. If the creditor agrees, you pay just a percentage of your outstanding balance and the rest of the debt is cancelled for good.

Outside the debt settlement industry, debt settlement is rarely (if ever) recommended as a viable solution to dealing with your debts.

Much of this has to do with the number of debt settlement scams and the miseducation of consumers to the effects of debt settlement. For certain consumers, there may be some benefits to debt settlement.

1) You Can Avoid Bankruptcy

The biggest reason that people choose debt settlement is to avoid bankruptcy. Bankruptcy is a debt solution that will follow you for the rest of your life. The bankruptcy entry remains on your credit report for 10 years, but many loan, credit card, and job applications ask if you’ve ever filed bankruptcy. If you answer no and the bank later finds out that you actually did file bankruptcy, you could be found guilty of fraud. In the case of employment, you could lose your job.

Settling debts with your creditors, when it’s done right, can help you avoid filing bankruptcy and dealing with the consequences of a bankruptcy.

Debt settlement will only stay on your credit report for seven years.

There’s no public record of you ever having settled your debts, so once the credit reporting time limit has run on your settled accounts, you won’t have to deal with the settlement anymore.

2) Relief From Overwhelming Debts

The goal of debt settlement isn’t to get over on your creditors by paying them only a portion of the debt you accumulated.

So it’s unwise to rack up a large amount of credit card debt with the expectation of settling it all.

If you’re legitimately having trouble paying back what you owe, debt settlement may help you. Once you’ve negotiated and paid your settlement, you’re essentially debt free in less time and at a lower cost than if you tried to pay off your debts on a typical repayment schedule.

Comparing debt settlement to bankruptcy, creditors may not get as much from you even if you filed Chapter 13 bankruptcy. They may not get anything at all if you file Chapter 7 bankruptcy. Creditors know this which is why they accept settlement offers from some consumer.

3) Repay Your Debts in Less Time

On a good debt settlement program, you will repay your debts in two to four years. This is much less time than you’d spend paying back your debts normally (probably not an option if you’re considering debt settlement). Even debt consolidation, credit counseling, and Chapter 13 bankruptcy have debt repayment periods from three to five years. It might take decades to pay off debt if you stuck to the original repayment schedule.