First and foremost, it should be understood what debt settlement means. It is basically a process to settle your debts with creditors. The process usually involves a third party who mediates between you and the creditor to decide upon a feasible debt settlement plan in which you have to pay a reduced debt. Depending upon the expertise of the third party and the understanding reached between you and the creditor, the debt may be reduced by as much as 25 to 50% of the original amount.

Yet, before opting for a debt settlement plan, you need to weigh your options carefully. Go in for this plan only if you are sure that you have no other option to pay your debt otherwise. Also, consider filing for bankruptcy or trying to sort out the matters yourself. Once you have decided that debt settlement is your best possible option, you need to understand how the settlement plan works.

As state above, a third party or a settlement agency mediates between you and your creditors. This agency then collects a certain decided upon amount from you on a monthly basis and puts it into an escrow account where the money accumulates over a period of time. After a decent amount is reached, the agency then contacts the creditor, negotiates the debt and begins to pay off. The cycle is repeated till the debt is paid off.

The negotiating agency, apart from charging fees for the services rendered, may also charge a monthly maintenance fee. Before zeroing on the agency, make sure that the fee is not higher than what they have decided to charge every month. This is because while accumulating money to pay off your debts, you are also accumulating late fees and interest charges as well.