Debt Settlement Agreement Overview
                     DEBT SETTLEMENT AGREEMENT: 
OVERVIEW
 Debt settlement is where a creditor gives his/her consent to forego a certain 
percentage of the outstanding amount. He agrees to settle at a reduced final 
figure of the total amount due. The Debt Settlement Agreement is a written 
agreement between a debtor and creditor where the debtor agrees to pay 
the creditor the outstanding debt due to him.
INTRODUCTION
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 For the debtor, the avoidance of court trials, for the most part
 For the creditor, a specified portion of the amount back is guaranteed
 The document, in itself, serves as evidence as and when needed
MERITS OF A 
DEBT 
SETTLEMENT 
AGREEMENT
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 Unfavourable terms in the Debt Settlement Agreement
 Late fees or interest may be inserted in the agreement
 It can lead to a negative impact on credit score
DEMERITS OF A 
DEBT 
SETTLEMENT 
AGREEMENT
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 A debt settlement is entered into by a borrower when they lack the capacity 
to pay the outstanding amount of debt to their creditors. Instead of declaring 
bankruptcy, the borrower may attempt to reach a debt settlement with their 
creditors.
UNDERSTANDING 
A DEBT 
SETTLEMENT
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 The borrower explains their financial situation to a debt settlement company.
 During the process, the debt settlement company would advise the borrower 
to stop making payments to their creditors and instead make payments to 
the debt settlement company
PROCESS FOR A 
DEBT 
SETTLEMENT
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 A debt settlement would lower the amount of debt outstanding. In the 
example above, although the borrower owed $30,000 in debt, the borrower 
only ended up paying $24,000.
LOWERING THE 
AMOUNT OF 
DEBT 
OUTSTANDING
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 The debt settlement company would put the payments made by the 
borrower into a savings account.
 Once the savings account’s reached a certain threshold, the debt settlement 
company would engage with the borrower’s creditors to negotiate a debt 
settlement.
PROCESS FOR A 
DEBT 
SETTLEMENT 
CONT.
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 A debt settlement allows the borrower to avoid bankruptcy. Depending on 
the country, consumer bankruptcy can last up to ten years – significantly 
impacting the credit score of a borrower. 
AVOIDING 
BANKRUPTCY
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 There is no guarantee that the debt settlement company would be able to 
reach a successful settlement with the borrower’s creditors. In fact, 
according to the Credit Counselling Society, the success rate of for-profit 
debt settlement companies is less than 10%.
IMPLICATIONS OF 
A DEBT 
SETTLEMENT
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