Debt settlement is widely talked about as a way to get out of debt, but not many people truly understand how it works. You may have recently experienced a financial hardship and are strongly considering consolidating your debts to relieve some pressure. Before bankruptcy, there are two main debt consolidation options to consider. The first is a debt consolidation personal loan. This is often for those who still have a good credit score and debt-to-income (DTI) ratio. The second is debt consolidation via debt settlement, which is what we will cover today. The debt settlement industry has had many companies that have been unscrupulous. In fact, the Consumer Financial Protection Bureau (CFPB) has repeatedly warned borrowers that dealing with debt settlement companies can be risky. Does that mean that all of these companies are bad and you should never work with one? ​Let's look at how debt settlement works, its pros and cons, and the most common scams and red flags of unethical debt settlement companies. Here's what you need to know.