# Debt Settlement

*Borrowing & Credit — Finicade finance glossary*

Debt settlement is paying a lump sum smaller than the balance in exchange for the creditor calling the debt closed. It's realistic mainly on charged-off or collections debt, where the holder bought the account cheaply, and settlements of 30–60% are common. The costs are underadvertised: the account is reported as settled rather than paid in full, forgiven debt can be taxable income, and settlement companies that tell you to stop paying first are engineering the damage they then charge to fix.

**Also known as:** debt negotiation, settling a debt

**Related terms:** [Debt Collection](https://finicade.com/glossary/debt-collection), [Charge-Off](https://finicade.com/glossary/charge-off), [Bankruptcy](https://finicade.com/glossary/bankruptcy), [Credit Report](https://finicade.com/glossary/credit-report), [Delinquency](https://finicade.com/glossary/delinquency)

Source: https://finicade.com/glossary/debt-settlement