Most unsecured debts can be settled. An unsecured debt is a debt where there is no collateral. Unsecured debts include medical bills, credit cards, department store cards, personal loans, collection accounts, student loans, amounts remaining after foreclosure or repossession, and bounced checks. There are a few creditors who will never compromise, but most will take a less­than­full payment as settlement­in­full to close a troublesome account. (Utility companies, however, rarely settle for less than the full balance.)

Secured, collateralized debts (such as a home or automobile) are an entirely different story. If the creditor can simply repossess the property, why should he negotiate? You can often renegotiate a short payment relief with a secured debt but don’t attempt to settle the account while you still possess the property.

Also, the creditor must have a good reason to want to settle. If the account is paid current and there is no recent history of late payment, it will be difficult to convince the creditor that it is in their best interest to settle. (This should not be read as a recommendation to stop paying bills that are current. If you stop paying your current bills, you will almost certainly make your credit situation worse.) Perhaps bad credit is not an issue for you at this point and you feel you must stop paying your bills in order to settle them and get back on top of your debt load. If this is the case, you make that decision at your own risk. In other words, don’t do it.