Is debt settlement a good option or is it just a ripoff?

That’s a complex question. First, let’s define debt settlement: debt settlement is when you negotiate with a creditor to pay off some debt by paying less than the full amount due. For example, say you owe $20,000 to a creditor. If you can get the creditor to take, say, $8,000 as payment in full, that’s a good thing—you’ve saved $12,000. In fact, settling for anything less than $20,000 puts you ahead of the game (though you do need to weigh in the balance the negative credit impact of debt settlement; it will be reported on your credit scores as not fully paying the debt). In that sense, debt settlement can’t be a rip off—you’ve saved money.

You can negotiate with a creditor yourself. However, since it can be time consuming and tricky to do so—it helps if you’re experienced, and have a sense for when creditors are willing to compromise, and what they’d accept as a reasonable settlement—there are valid reasons for turning to a knowledgeable third party to help you. This is where many people have had trouble and feel cheated by their debt settlement—they feel (or were in fact) cheated) by the person, organization, or business they hired to settle their debt for them.

The people who do debt settlement professionally are generally either attorneys (who do it as part of generally advising or representing debtors; many attorneys will do this as part of a bankruptcy practice, for example) or companies specializing in debt settlement. Not all of the companies that do debt settlement are fully on the up-and-up: some charge excessive rates for their services, often charging thousands of dollars to conduct negotiations. Some also work in a way that often tends to damage the debtor’s credit rating, such as by withholding payments to creditors (the debtor sends the money to the debt settlement company) until they’ve accumulated enough to tender a credible settlement offer. However, while they are doing that, the debtor is defaulting on the loan.

Of course, it would not be fair or accurate to say that all attorneys are ethical; however, since attorneys are bound by a code of conduct with real “teeth”—the threat of suspension or disbarment—the odds are greater that an attorney will act in his or her client’s best interests.

So in answer to your question: if you can settle your debt for less, that’s almost always a good thing. The important thing is to not pay too much to do it, and to also not make an already bad situation worse in the course of negotiating debt settlement. Finding someone you can trust and who charges a reasonable fee for his or her services can be the difference between debt settlement being a rip off or not.