Debt settlement is a financial strategy where a debtor negotiates with creditors to reduce the total amount of debt owed, typically paying a lump sum that is less than the full balance to settle the account. This approach is often used by individuals facing financial hardship who cannot repay debts in full but want to avoid bankruptcy.

While debt settlement can provide relief and help avoid legal action, it may negatively impact credit scores and could have tax implications, as forgiven debt may be considered taxable income. Working with a reputable debt settlement company or attorney can help ensure fair negotiations and protect against scams or abusive practices.