Settling debt is essentially coming to an agreement with your creditors to pay back part of what you owe and be forgiven for the rest. So why would a lender agree to settle with you for less money than you owe? In most cases, they agree to recover at least a part of the debt than none. They also know bankruptcy may be a possibility for a few people, during which case they could not get anything. It’s also costly for them to gather on your debt, especially if they plan to sue you to pay.

Some people choose working with debt settlement companies to handle settling debts with creditors. But you can also contact your credit card companies or other lenders on your own and find out a payment plan directly. This isn’t the easiest process. There are nuances to calculating a settlement that's both attractive to the lender and affordable for you.

When you don’t pay an account in full, it will hurt your credit score, even if you pay some of what you owe. So don’t expect your credit score to immediately improve after you agree to a debt. Typically, though, settling a debt is taken into account better than not paying it in the least. 

Settling a debt also doesn’t remove it from your credit report. The now paid collection item stays on your report for seven years from the time your account becomes delinquent. This is called the “original delinquency date,” which is the date of your first late payment. 

However, remember that the weightage of settling the debt decreases with time. If you’re working through a debt settlement company, they may advise you to stop making regular payments on debt so that you can make a lump sum settlement to a creditor. That can be risky for your credit score, because your late payments will be recorded on your credit report and your score will take a hit. It’s better to have one delinquent account than several, so try not to fall behind on your other bills.

     Try asking for “pay for delete”

As a part of your debt settlement negotiation, you can request your creditor to remove the settlement account deleted from your report. You can suggest this in exchange by upping the amount you’re offering to pay.