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A debt settlement agreement formalizes a renegotiation or settlement between a debtor and a creditor. It typically reduces or eliminates the original debt amount, allowing the creditor to forgive part of the debt and release the debtor from any remaining obligations. This forgiveness usually occurs after the debtor makes their final payment as per the settlement terms. Additionally, the creditor must remove the debtor's obligations under the original contract and forgo any collection actions related to that contract.