Although debt settlement allows you to negotiate so that you can pay less than you owe, it results in a negative mark on your credit report. Your score could drop by as much as 150 points and the debt will stay on your report for about seven years.
In addition, depending on the debt, the forgiven portion is considered taxable income. As an alternative, consider seeking help from a credit counselor. The National Foundation for Credit Counseling is a good place to start.
For more on this topic, see 10 Questions to Ask a Debt Settlement Company.