Debt settlement options make sense when you have no choice but to file bankruptcy. When you have lost your job or have no source of income, when you realize all doors to debt relief are closed, you might think of bankruptcy. This helps you avoid legal threatening from the credit card companies and collection agencies. However bankruptcy in disguise is an invitation to a greater threat, you close all options of further loans and carry a bad credit score for at least 7-10 years. Besides, any public or private company possesses the right to deny you any financial aid or employment as well.
This looks like a nightmare, you would definitely not want to go for bankruptcy provided the repercussions are clear to you. If you can negotiate with the creditor on your own, there is practically no need of referring a settlement company. Most of the legitimate settlement firms make you go through a program to ensure you really need their help. Debt settlement is a paid service and must be sought in dire need only. If you owe your creditors more than $ 10000 and you have very low chances of getting a reduction on your own, you should refer a settlement firm. They negotiate with the creditor on your behalf to reduce the principal debt amount.
They promise debt payment in a lump some amount to the creditor which is several thousand less than the total debt; upon agreement the creditor helps you get a clean credit score by the credit bureau. In this case, you apparently pay not more than $ 4000- $ 5000 in 2-3 years and get out of debt. The underlying strategy of the debt settlement firm is to stop you from making direct payment to the creditor for a while, instead save this amount in a trusted account. Meanwhile they take the responsibility to handle the creditors, negotiate the debt amount and convince them that you intend to pay back the debt. A legal firm would ensure quality service to the customer and act as first interface to any threats from credit card companies or collection agency, once you sign up a program with them. Ultimately this program should be able to reduce your debt and make if affordable for you.