How Does Debt Settlement Work? – Seth

“Dear Steve,

My parents really need to figure out some way to get out of Debt. I just heard of a debt settlement.

How do debt settlements work? And do you advise using them? Or should they just go with a debt consolidation? They have good credit, but really need a solution.


Dear Seth,

Let’s not get the solution ahead of the situation.

I’d suggest you first read How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. They will give you a great overview of what we need to deal with to get you moving in the right direction.

Then use the free How to Get Out of Debt Calculator to review your options.

Once you’ve identified a company you want to work with, then follow my step-by-step guide on what you should look for and expect from a good debt relief company.

Please post your responses and follow-up messages to me on this in the comments section below.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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2 thoughts on “How Does Debt Settlement Work? – Seth”

  1. Debt settlement is for those people who cannot afford to repay all of their unsecured debt, primarily credit card debt. If someone can afford to repay in full, either through a consolidation loan or through a non profit credit counseling program, they should do so, for the sake of their credit score and also because it is just the right thing to do. A debt settlement program, where only a portion of the amount owed is repaid, will significantly affect the credit score, if that score is good at the current time. For some that is a problem, for others, particularly those who really cannot afford to repay their debt, that lower score is probably going to happen anyways, as they fall behind on their payments. Hope this helps. As Steve says, do some investigation after determining what the real problem is. If they have the money to pay but want to get out of debt sooner then just focus any extra payment amount on just the lowest balance debt until it is paid off, then go to work on the next. Do not spread the extra amount being paid among several debts..just focus on the lowest balance first.

    • Dave!

      Good to see you. Thanks for dropping in to comment.

      My only caveat in response is that in my opinion people should select the right path to tackle their debt outside of some perceived “right thing to do” and that the value of the credit score should be actually a secondary concern. Good credit is actually quite easy to rebuild.

      One issue many seem to have fed into them is that solutions like bankruptcy are “not the right thing” or immoral. I’m not pushing bankruptcy but I would like to see everyone be as educated and informed as possible about all options so they can make the right decision for them.

      This might be of interest to all, Is Bankruptcy Sinful and Bad or Right and Moral? An Examination.


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