What does “debt settlement” mean? The term “debt settlement” means negotiating with a creditor to reduce the amount of a delinquent debt down to a lower amount, that the debtor can then pay in order to fully satisfy (or pay off) the debt. The primary benefits of this strategy are to help you become debt free sooner, pay your debts on terms structured to your specific budget, avoid bankruptcy, and pay less than you would by making the minimum monthly payments.