You withhold payments from your credit card companies and/or medical bills so that you default (i.e. charge-off) on them, if you have not already defaulted. By defaulting, you hope that at some point these companies will be willing to settle for much less than what you currently owe them. At that point you need to be able to offer them a large lump-sum payment. You can do this on your own or hire a debt settlement agency to guide you through.

Type of Debt: Credit card and/or medical bills. Works better if you have already defaulted (i.e. charged-off) on the debt.

Target Audience: Consumers who cannot even afford the minimum payment towards their credit card debt or unpaid medical bills.

Pros: If you manage to get a settlement, you truly get a portion of your debt forgiven. It works best with debt that is already in default.

Cons: Defaulting on debt that you have not already defaulted on will seriously damage your credit. There is no guarantee that any of your creditors will be willing to settle. Make sure that you truly lack the resources to pay off these debts, because your creditors can sue you in order to get their money back.