The debt settling process can be an effective way to eliminate debts quickly (within 36 months) and for less than the full amount owed. However, it is important to note that not all of your debts will qualify for inclusion in a settlement program.
In order to understand why this is, you must understand how such a program works. You see, when it comes right down to it, the process is simply a negotiation between you and your creditor(s). You are offering less than the full amount of the debts you owe in exchange for a lump sum payment, while your creditor is demanding payment in full (plus interest and penalties in most cases).
A good way to understand why this happens is to put yourself in the shoes of the creditor.
Imagine that you lent someone you know $5,000. You drew up an agreement that laid out the repayment plan and documented what was owed. The document was then signed by both parties. Then, after 6 months of receiving payments, you were called by your "friend" and told that she/he was in serious financial difficulty and would no longer be able to make payments on the debt.
What would you do? Do you continue badgering them for payments? Send it to a collection agency? Sue them and hope to get a judgment against them? (Keep in mind that even if you do get a judgment, collecting on it is another story.) And what if ultimately the person declares bankruptcy? In this case you could be left with nothing.
While you are mulling over your options for a month or so, you receive another phone call from your "friend". This time they are offering to make a one time payment of $1,000 in exchange for you dismissing the debt. Now you have something else to ponder.
Do you take the guaranteed $1,000? Or do you hold off and try and collect more if not all of what is owed to you, knowing that it is very possible you could end up with nothing. This is very similar to what your creditors will be trying to decide as the debt settling process of negotiations unfold. And this is also the reason why those creditors will often accept 30 to 40 cents on the dollar now, rather than risk getting nothing in the future. A bird in the hand is worth two in the bush.
The power that you wield in this negotiation comes from the creditors realizing that they may end up with nothing, or close to it, if they don't take what you are offering them right now. And the main reason for this is that the debts in question are unsecured. In other words, you didn't have to pledge any assets as a guarantee that these debts would be paid back.
Secured debts on the other hand, are a different kettle of fish. Let's look at a mortgage for example.
Let's say that you called up your mortgage company and told them that you could no longer continue paying them, and would they accept 30 cents on the dollar in exchange for dismissing the debt (mortgage). What do you think their response would be?
Well, after they stopped laughing, they would kindly inform you that if you top paying your mortgage they will have to foreclose on your home. You see, when you were lent the money to buy the home, you sign back the house as collateral for that loan. If you stop paying back the loan, the lender just takes the house back. (That is a bit of an oversimplification, but I think you get the picture.)
So as you can see the debt settling process that works for unsecured debts (a prime example of which is credit card debt), will not fly when it comes to secured debts (mortgages, car loans and the like).