Debt settlement agreement is a method whereby a company assists a credit card borrower in the reduction of the amount owed to the credit card companies. This route is usually taken by borrowers which accumulated an enormous amount of credit card charges, that they are unable to keep up as the debt falls due.

Hiring a debt settlement firm would entail an additional costs but if your goal is to have some room for a more reduced debt, then this would be the way. However, you should be aware that having a debt settlement will surely affect your credit rating and you must be aware of it.

Accordingly, "when a debtor goes through debt settlement, he doesn't end up fulfilling the agreement he made with the credit card company. As a result, though the debt will be marked as "paid" on his credit score, it will not be marked as "paid-as-agreed." This can adversely impact one's ability to receive credit from other companies."

Furthermore, "during the time a debtor is going through the debt settlement process and is paying a monthly fee to the debt settlement company, the credit card company is not being paid. This will significantly affect a debtor's credit score."

Yes, settlements negatively affect your credit rating. On your credit bureau report, it's going to say "settled" rather than "paid in full." Credit issuers are going to see that on your file the next time you apply for credit, so it will definitely do damage.

The only way to avoid this is if you use a debt consolidation service who makes sure "paid in full" goes onto your credit file even if they negotiate down the total amount of outstanding debt. From what I understand, not all companies are willing to do this. If they say they'll do it and then don't, I'm also not sure if there would be any recourse.

One other thing to remember is that settlements that reduce your debt by more than $600 will increase your taxable income.