(The author of this article is not a lawyer, nor should this article be substituted for legal advice by a practicing attorney. For advice regarding your situation, please contact a lawyer.)

Debt settlement, also known as debt negotiation or debt reduction, is a relatively new way for dealing with your debt problems. In a debt settlement program, by negotiating with a creditor, it is possible a client may be able to settle their debts for less than the balances they owe and as a result get out of debt much faster than just paying the minimums.

Debt settlement is a good solution for consumers feeling overwhelmed with credit card debt that find themselves either falling behind on their payments or just able to afford the minimums. Considering the savings, in may be worth considering if you find yourself in any of the aforementioned situations. As with any debt solution, however, there are potential downsides to debt settlement that should always be considered prior to enrollment. First, debt settlement may have an adverse impact on your credit.

Two other drawbacks to consider before choosing debt settlement include 1) the possibility of legal action being taken by the creditor to collect the full balance and 2) the possibility of creditors harassing you until the debt is settled.  All three of these disadvantages stems from the fact that payments are not made to creditors during the course of the program except when a resolution has been made on an account. 

Although there is little that can be done in the way of protecting one’s credit or stopping legal action if a creditor decides to pursue this avenue, one advantage of debt settlement in California is that there are highly favorable state collection laws that do not exist in other states, which prohibit certain types of creditor harassment.