FINANCE GUIDE

What is debt settlement?

Before initiating our discussion regarding what is debt settlement?s First let's revise the meaning of two words it is made of.

Debt settlement is a union of two words namely:

1. Debt and
2. Settlement.

The individual meaning of these two words is as follows:

1. Debt means the total amount of money borrowed by an entity like an individual, company, firm, and so on.
2. Settlement implies an agreement between two or more parties to resolve issues between them.

So based on the above understanding now let's try to conclude the meaning of debt settlement.

Debt settlement means to make an agreement or do a settlement in relation with the sum of money borrowed and lent between the parties.

Debt settlement acts as a relief from the burden of debt, and it is also an alternative solution to the worst case of bankruptcy (insolvency).

Figure 1. What is debt settlement? Image credits © Prof. Mudit Katyani.

Meaning of debt

Before we begin to comprehend the meaning of debt, first let's briefly discuss its etymology (i.e. origin or history of words).

The English word debt has its origin in Latin word debitum, which means to owe something to someone.

Here, in context of above sentence:

1. Something can be money, articles, promissory note, etc.
2. Someone is used to refer to an individual or entity that does the activity of lending (giving).

The following image depicts this origin of English word debt.

So, what is debt? Let's understand its meaning:

• Debt is a current obligation or due at present on a debtor. It is supposed to be settled or repaid in the future.
• Debt settlement is a way to keep up or fulfill borrower's (debtor's) promise of repayment made to the lender (creditor).

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