The main objective of debt settlement is similar to what it is of credit counseling and that is to make their client get rid of the debts they have accumulated. But there is a difference in the way the two perform. While the credit counseling or Debt Reduction method work on reducing the rate of interest for you to pay off your debt more easily, the debt settlement method actually reduces your original principal amount of loan by up to 50%-75%. That is something remarkable. But one must also understand that there are a few things one should be careful about.



First of all, debt settlement is only for those who have just no option but to go bankrupt. It should not be used as a method to pay less and get off your debts. You will only be considered if you are really in no position to repay the original debt.

If you subscribe to debt settlement agency, you will first have to pay a startup fee. This fee shouldn't exceed what you will need to pay every month as monthly fees. On top of that you might need to pay a maintenance fee.

Once you join an agency you will need to pay a fixed some of money which is then deposited in an escrow account. You will need to put in an exact amount every month. The amount will be worked out by the agency in discussion with you. It is only after you have gathered enough money in your escrow account that your Debt Settlement agency will contact your creditors. And then the negotiations start. As deals get struck you pay off the debt with your money accumulated in the escrow account. And you continue saving till you have paid off all your debts.

Debt settlement agencies will charge you a percentage of the money you save on each debt. Also, since you are not being able to pay your debt off, your creditors will report that to the concerned people and that would make it extremely difficult for you apply for new loans. Your credit report is bound to be on the negative for years.

At the end of the day it is up to you to decide which option you take. You can declare yourself to be bankrupt. Or you can seek the help of debt settlement agencies or credit counseling agencies. And if you think you alone can handle everything, then do so.