How Does Credit Card Debt Settlement Work?

Debt settlement works like this:  A debtor hires a company to settle with the debtor's creditors.  A typical arrangement is for the debtor to pay a fee over time, and also pay an amount into a settlement savings account.  This savings account is used by the debt settlement company to settle on different credit accounts over 36-48 months.  

Debt Settlement Risks

There is some risk to hiring a debt settlement company.  Not all creditors may settle.  Some may sue the debtor and the debtor may have to file bankruptcy to stop the law suit.  Another option, if the creditor sues, is to allow the creditor to win a judgment from the court and allow the creditor to garnish the debtor's wages by 25% each month until that debt is paid off.  Not all creditors will sue.  Usually creditors that are owed a large sum may be the ones that end up suing.

Amounts to Settle Debt

A typical arrangement is for the debt settlement company to charge in total 50-75% of the amount of debts owed to the credit cards.  Add up the amount of the total payments to see what you are actually paying.  Also, look at the rating of the company on yellowpages.com.