In the wake of the global recession we have been experiencing recently, more and more solutions have come up to help those who can no longer pay their debt, one of these being the very talked about debt settlement.
And although it has been largely publicized, the greater audience is still at a loss when it comes to the details of this seemingly miraculous plan.
The basics of a debt settlement are fairly easy to grasp - when you become unable to pay even your monthly minimum you go to your creditor and inform him of your situation and offer to pay a part of your debt at a smaller interest rate in order to make it easier for you to get out of your bad financial situation.
The reason why a creditor would take such an offer is because he is interested in getting his money back and, since our going into bankruptcy will do just the opposite, he would rather cut your debt and take at least some of it back.
A general settlement may reduce your debt by fifty percent, but there have been cases with a cut of almost seventy percent - this varies in according with your personal situation and the creditor's willingness to cooperate.
But what most people don't know is what exactly is being eliminated; it's usually not all the debt itself, as this only consists of part of the reduction.
The bulk is made up of different fees that have accumulated over time, penalties if you've systematically neglected your payments and extra hidden charges that you were not even aware you were paying in the first place.
Also, by paying your debt in a shorter period of time, you eliminate a lot of the interest that would accumulate normally, so in the end you end up mostly paying back the exact sum of money that you originally borrowed, without all the extra add-on that has piled up over time.
Nevertheless, debt settlement is still a very good deal for those in need and is a welcome and very much needed alternative to bankruptcy, a debtor's worst nightmare.