Agreeing with your creditors to accept a reduced lump sum payment in combination with debt consolidation loans is a useful strategy. By doing this you can reduce the total amount you need to borrow, while simultaneously reducing your total monthly payments. This can let you really get back on track financially, and cut your commitments down to size.
While you might think it unbelievably those companies you owe money to will settle for less, most will be willing to agree. The numbers of bad debts are extremely high, while the amounts historically recovered could be well under ten cents in the dollar. So if you can show you can not pay the full amount but are willing to pay a reasonable proportion, there is a lot of pressure for them to agree.
Another major motivation is to avoid expensive legal costs. As everyone knows going to court can be an expensive business, and it is not worth it for reliably small amounts. Banks and credit card companies may already have had to write the amount off, so any reasonable amount they can recover looks good.
Another important factor is that by agreeing an amount with you now, your creditors will get a better deal than after a lengthy court procedure. Experienced lenders will often be satisfied with a bird in the hand. There is certainly no harm in trying to negotiate a better deal, especially if you can prove to the creditor that they are illegally to get a better deal by waiting.
If you have not been able to make your monthly payments, you will have a bad credit record. As this is a big negative factor, you need to get your record cleared. One way of doing this is to make it a condition of any settlement deal that the lender has the bad credit details expunged from your record. You will then be able to start off with a clean slate again.
In any event, debt consolidation loans have aggressive advantages for anyone who owes money. You will end up with only one debt to worry about and can often negotiate a lower interest rate than that on your existing debts, while also extending the repayment period to make the payments affordable. It is much less of a headache to have to deal with only one creditor and have a more affordable payment, even if you do not succeed in reducing your debt amounts.