Debt settlement is simply negotiating with each unsecured creditor to pay a lesser amount than what is owed to close the account. Unsecured debts are credit cards, medical bills, store credit, and personal loans. Secured loans are secured against an asset such as a home, car, or land. If the debtor defaults the lender can take the asset, sell it and use the proceeds to pay down the debt. However, if the proceeds of the sale aren’t enough to pay off the loan, the lender can sue the debtor for the remaining amount.
Debt settlement has disadvantages. Because the loan isn’t paid off in full it can be reported to credit bureaus and will impact your credit rating negatively.