If you settle an account, you are negotiating a reduced payback for the original amount you owed on the account contract, and the lender takes a loss. When you don't fulfill the original terms of the contract, the lender will report the account as "settled." "Settled" means you didn't pay the debt as agreed, and that will hurt your credit scores.
Debt settlement may not be the wrong thing to do based on your overall financial picture. If you are able to continue to make full payments, then that is the best option. However, debt settlement generally is not as bad as bankruptcy.
It's a good idea to talk to a qualified credit counselor before making a decision. A credit counselor may be able to help you find ways to repay your debts without going through the debt settlement process and share information and tools to help you avoid future financial difficulties.
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Scoped on: 05/03/2016