diff --git a/src/lib/components/EnhancedBalance.svelte b/src/lib/components/EnhancedBalance.svelte
index 04abd00..7b03779 100644
--- a/src/lib/components/EnhancedBalance.svelte
+++ b/src/lib/components/EnhancedBalance.svelte
@@ -43,16 +43,6 @@
     // Recalculate when debtData changes
     singleDebtUser = getSingleDebtUser();
     shouldShowIntegratedView = singleDebtUser !== null;
-    
-    // Temporary debug logging
-    if (!loading) {
-      console.log('🔍 Debug Info:');
-      console.log('- debtData:', debtData);
-      console.log('- whoOwesMe length:', debtData.whoOwesMe.length);
-      console.log('- whoIOwe length:', debtData.whoIOwe.length);
-      console.log('- singleDebtUser:', singleDebtUser);
-      console.log('- shouldShowIntegratedView:', shouldShowIntegratedView);
-    }
   }
   
 
diff --git a/src/lib/utils/categories.ts b/src/lib/utils/categories.ts
index 6da72b7..499d1d9 100644
--- a/src/lib/utils/categories.ts
+++ b/src/lib/utils/categories.ts
@@ -22,6 +22,10 @@ export const PAYMENT_CATEGORIES = {
   fun: {
     name: 'Fun',
     emoji: '🎉'
+  },
+  settlement: {
+    name: 'Settlement',
+    emoji: '🤝'
   }
 } as const;
 
diff --git a/src/lib/utils/settlements.ts b/src/lib/utils/settlements.ts
new file mode 100644
index 0000000..9ed4d8a
--- /dev/null
+++ b/src/lib/utils/settlements.ts
@@ -0,0 +1,63 @@
+// Utility functions for identifying and handling settlement payments
+
+/**
+ * Identifies if a payment is a settlement payment based on category
+ */
+export function isSettlementPayment(payment: any): boolean {
+  if (!payment) return false;
+  
+  // Check if category is settlement
+  return payment.category === 'settlement';
+}
+
+/**
+ * Gets the settlement icon for settlement payments
+ */
+export function getSettlementIcon(): string {
+  return '🤝'; // Handshake emoji for settlements
+}
+
+/**
+ * Gets appropriate styling classes for settlement payments
+ */
+export function getSettlementClasses(payment: any): string[] {
+  if (!isSettlementPayment(payment)) {
+    return [];
+  }
+  
+  return ['settlement-payment'];
+}
+
+/**
+ * Gets settlement-specific display text
+ */
+export function getSettlementDisplayText(payment: any): string {
+  if (!isSettlementPayment(payment)) {
+    return '';
+  }
+  
+  return 'Settlement';
+}
+
+/**
+ * Gets the other user in a settlement (the one who didn't pay)
+ */
+export function getSettlementReceiver(payment: any): string {
+  if (!isSettlementPayment(payment) || !payment.splits) {
+    return '';
+  }
+  
+  // Find the user who has a positive amount (the receiver)
+  const receiver = payment.splits.find(split => split.amount > 0);
+  if (receiver && receiver.username) {
+    return receiver.username;
+  }
+  
+  // Fallback: find the user who is not the payer
+  const otherUser = payment.splits.find(split => split.username !== payment.paidBy);
+  if (otherUser && otherUser.username) {
+    return otherUser.username;
+  }
+  
+  return '';
+}
\ No newline at end of file
diff --git a/src/models/Payment.ts b/src/models/Payment.ts
index 44592ad..537d7d3 100644
--- a/src/models/Payment.ts
+++ b/src/models/Payment.ts
@@ -9,7 +9,7 @@ export interface IPayment {
   paidBy: string; // username/nickname of the person who paid
   date: Date;
   image?: string; // path to uploaded image
-  category: 'groceries' | 'shopping' | 'travel' | 'restaurant' | 'utilities' | 'fun';
+  category: 'groceries' | 'shopping' | 'travel' | 'restaurant' | 'utilities' | 'fun' | 'settlement';
   splitMethod: 'equal' | 'full' | 'proportional' | 'personal_equal';
   createdBy: string; // username/nickname of the person who created the payment
   createdAt?: Date;
@@ -55,7 +55,7 @@ const PaymentSchema = new mongoose.Schema(
     category: {
       type: String,
       required: true,
-      enum: ['groceries', 'shopping', 'travel', 'restaurant', 'utilities', 'fun'],
+      enum: ['groceries', 'shopping', 'travel', 'restaurant', 'utilities', 'fun', 'settlement'],
       default: 'groceries'
     },
     splitMethod: {
diff --git a/src/routes/api/cospend/balance/+server.ts b/src/routes/api/cospend/balance/+server.ts
index f17fb21..3a41ed0 100644
--- a/src/routes/api/cospend/balance/+server.ts
+++ b/src/routes/api/cospend/balance/+server.ts
@@ -61,6 +61,21 @@ export const GET: RequestHandler = async ({ locals, url }) => {
         .limit(10)
         .lean();
 
+      // For settlements, fetch the other user's split info
+      for (const split of recentSplits) {
+        if (split.paymentId && split.paymentId.category === 'settlement') {
+          // This is a settlement, find the other user
+          const otherSplit = await PaymentSplit.findOne({
+            paymentId: split.paymentId._id,
+            username: { $ne: username }
+          }).lean();
+          
+          if (otherSplit) {
+            split.otherUser = otherSplit.username;
+          }
+        }
+      }
+
       return json({
         netBalance,
         recentSplits
diff --git a/src/routes/api/cospend/payments/+server.ts b/src/routes/api/cospend/payments/+server.ts
index e6fca34..a00cbba 100644
--- a/src/routes/api/cospend/payments/+server.ts
+++ b/src/routes/api/cospend/payments/+server.ts
@@ -52,7 +52,7 @@ export const POST: RequestHandler = async ({ request, locals }) => {
     throw error(400, 'Invalid split method');
   }
 
-  if (category && !['groceries', 'shopping', 'travel', 'restaurant', 'utilities', 'fun'].includes(category)) {
+  if (category && !['groceries', 'shopping', 'travel', 'restaurant', 'utilities', 'fun', 'settlement'].includes(category)) {
     throw error(400, 'Invalid category');
   }
 
diff --git a/src/routes/cospend/+page.svelte b/src/routes/cospend/+page.svelte
index 29cc617..3306894 100644
--- a/src/routes/cospend/+page.svelte
+++ b/src/routes/cospend/+page.svelte
@@ -6,6 +6,7 @@
   import EnhancedBalance from '$lib/components/EnhancedBalance.svelte';
   import DebtBreakdown from '$lib/components/DebtBreakdown.svelte';
   import { getCategoryEmoji, getCategoryName } from '$lib/utils/categories';
+  import { isSettlementPayment, getSettlementIcon, getSettlementClasses, getSettlementReceiver } from '$lib/utils/settlements';
 
   export let data; // Used by the layout for session data
 
@@ -57,6 +58,27 @@
     // Use pushState for true shallow routing - only updates URL without navigation
     pushState(`/cospend/payments/view/${paymentId}`, { paymentId });
   }
+
+  function getSettlementReceiverFromSplit(split) {
+    if (!isSettlementPayment(split.paymentId)) {
+      return '';
+    }
+    
+    // In a settlement, the receiver is the person who is NOT the payer
+    // Since we're viewing the current user's activity, the receiver is the current user
+    // when someone else paid, or the other user when current user paid
+    
+    const paidBy = split.paymentId?.paidBy;
+    const currentUser = data.session?.user?.nickname;
+    
+    if (paidBy === currentUser) {
+      // Current user paid, so receiver is the other user
+      return split.otherUser || '';
+    } else {
+      // Someone else paid, so current user is the receiver
+      return currentUser;
+    }
+  }
 </script>
 
 <svelte:head>
@@ -74,6 +96,9 @@
   <div class="actions">
     <a href="/cospend/payments/add" class="btn btn-primary">Add Payment</a>
     <a href="/cospend/payments" class="btn btn-secondary">View All Payments</a>
+    {#if balance.netBalance !== 0}
+      <a href="/cospend/settle" class="btn btn-settlement">Settle Debts</a>
+    {/if}
   </div>
 
   <DebtBreakdown />
@@ -87,46 +112,79 @@
       <h2>Recent Activity</h2>
       <div class="activity-dialog">
         {#each balance.recentSplits as split}
-          <div class="activity-message" class:is-me={split.paymentId?.paidBy === data.session?.user?.nickname}>
-            <div class="message-content">
-              <ProfilePicture username={split.paymentId?.paidBy || 'Unknown'} size={36} />
-              <a 
-                href="/cospend/payments/view/{split.paymentId?._id}" 
-                class="activity-bubble"
-                on:click={(e) => handlePaymentClick(split.paymentId?._id, e)}
-              >
-                <div class="activity-header">
-                  <div class="user-info">
-                    <div class="payment-title-row">
-                      <span class="category-emoji">{getCategoryEmoji(split.paymentId?.category || 'groceries')}</span>
-                      <strong class="payment-title">{split.paymentId?.title || 'Payment'}</strong>
-                    </div>
-                    <span class="username">Paid by {split.paymentId?.paidBy || 'Unknown'}</span>
-                    <span class="category-name">{getCategoryName(split.paymentId?.category || 'groceries')}</span>
+          {#if isSettlementPayment(split.paymentId)}
+            <!-- Settlement Payment Display - User -> User Flow -->
+            <a 
+              href="/cospend/payments/view/{split.paymentId?._id}" 
+              class="settlement-flow-activity"
+              on:click={(e) => handlePaymentClick(split.paymentId?._id, e)}
+            >
+              <div class="settlement-activity-content">
+                <div class="settlement-user-flow">
+                  <div class="settlement-payer">
+                    <ProfilePicture username={split.paymentId?.paidBy || 'Unknown'} size={64} />
+                    <span class="settlement-username">{split.paymentId?.paidBy || 'Unknown'}</span>
                   </div>
-                  <div class="activity-amount" class:positive={split.amount < 0} class:negative={split.amount > 0}>
-                    {#if split.amount > 0}
-                      -{formatCurrency(split.amount)}
-                    {:else if split.amount < 0}
-                      +{formatCurrency(split.amount)}
-                    {:else}
-                      even
+                  <div class="settlement-arrow-section">
+                    <div class="settlement-amount-large">
+                      {formatCurrency(Math.abs(split.amount))}
+                    </div>
+                    <div class="settlement-flow-arrow">→</div>
+                    <div class="settlement-date">{formatDate(split.createdAt)}</div>
+                  </div>
+                  <div class="settlement-receiver">
+                    <ProfilePicture username={getSettlementReceiverFromSplit(split) || 'Unknown'} size={64} />
+                    <span class="settlement-username">{getSettlementReceiverFromSplit(split) || 'Unknown'}</span>
+                  </div>
+                </div>
+              </div>
+            </a>
+          {:else}
+            <!-- Regular Payment Display - Speech Bubble Style -->
+            <div class="activity-message" 
+                 class:is-me={split.paymentId?.paidBy === data.session?.user?.nickname}>
+              <div class="message-content">
+                <ProfilePicture username={split.paymentId?.paidBy || 'Unknown'} size={36} />
+                <a 
+                  href="/cospend/payments/view/{split.paymentId?._id}" 
+                  class="activity-bubble"
+                  on:click={(e) => handlePaymentClick(split.paymentId?._id, e)}
+                >
+                  <div class="activity-header">
+                    <div class="user-info">
+                      <div class="payment-title-row">
+                        <span class="category-emoji">{getCategoryEmoji(split.paymentId?.category || 'groceries')}</span>
+                        <strong class="payment-title">{split.paymentId?.title || 'Payment'}</strong>
+                      </div>
+                      <span class="username">Paid by {split.paymentId?.paidBy || 'Unknown'}</span>
+                      <span class="category-name">{getCategoryName(split.paymentId?.category || 'groceries')}</span>
+                    </div>
+                    <div class="activity-amount" 
+                         class:positive={split.amount < 0} 
+                         class:negative={split.amount > 0}>
+                      {#if split.amount > 0}
+                        -{formatCurrency(split.amount)}
+                      {:else if split.amount < 0}
+                        +{formatCurrency(split.amount)}
+                      {:else}
+                        even
+                      {/if}
+                    </div>
+                  </div>
+                  <div class="payment-details">
+                    <div class="payment-meta">
+                      <span class="payment-date">{formatDate(split.createdAt)}</span>
+                    </div>
+                    {#if split.paymentId?.description}
+                      <div class="payment-description">
+                        {truncateDescription(split.paymentId.description)}
+                      </div>
                     {/if}
                   </div>
-                </div>
-                <div class="payment-details">
-                  <div class="payment-meta">
-                    <span class="payment-date">{formatDate(split.createdAt)}</span>
-                  </div>
-                  {#if split.paymentId?.description}
-                    <div class="payment-description">
-                      {truncateDescription(split.paymentId.description)}
-                    </div>
-                  {/if}
-                </div>
-              </a>
+                </a>
+              </div>
             </div>
-          </div>
+          {/if}
         {/each}
       </div>
     </div>
@@ -216,6 +274,16 @@
     background-color: #e8e8e8;
   }
 
+  .btn-settlement {
+    background: linear-gradient(135deg, #28a745, #20c997);
+    color: white;
+    border: none;
+  }
+
+  .btn-settlement:hover {
+    background: linear-gradient(135deg, #20c997, #1e7e34);
+  }
+
   .recent-activity {
     background: white;
     padding: 1.5rem;
@@ -300,6 +368,79 @@
     border-right-color: transparent;
   }
 
+
+  /* New Settlement Flow Activity Styles */
+  .settlement-flow-activity {
+    display: block;
+    text-decoration: none;
+    color: inherit;
+    background: linear-gradient(135deg, #f8fff9, #e8f5e8);
+    border: 2px solid #28a745;
+    border-radius: 1rem;
+    padding: 1.5rem;
+    margin: 0 auto 1rem auto;
+    max-width: 400px;
+    transition: all 0.2s ease;
+  }
+
+  .settlement-flow-activity:hover {
+    box-shadow: 0 6px 20px rgba(40, 167, 69, 0.2);
+    transform: translateY(-2px);
+  }
+
+  .settlement-activity-content {
+    width: 100%;
+  }
+
+  .settlement-user-flow {
+    display: flex;
+    align-items: center;
+    justify-content: space-between;
+    gap: 1.5rem;
+  }
+
+  .settlement-payer, .settlement-receiver {
+    display: flex;
+    flex-direction: column;
+    align-items: center;
+    gap: 0.75rem;
+    flex: 0 0 auto;
+  }
+
+  .settlement-username {
+    font-weight: 600;
+    color: #28a745;
+    font-size: 1rem;
+    text-align: center;
+  }
+
+  .settlement-arrow-section {
+    display: flex;
+    flex-direction: column;
+    align-items: center;
+    gap: 0.5rem;
+    flex: 1;
+  }
+
+  .settlement-amount-large {
+    font-size: 1.5rem;
+    font-weight: 700;
+    color: #28a745;
+    text-align: center;
+  }
+
+  .settlement-flow-arrow {
+    font-size: 1.8rem;
+    color: #28a745;
+    font-weight: bold;
+  }
+
+  .settlement-date {
+    font-size: 0.9rem;
+    color: #666;
+    text-align: center;
+  }
+
   .activity-header {
     display: flex;
     justify-content: space-between;
@@ -399,5 +540,28 @@
       max-width: 300px;
       text-align: center;
     }
+
+    /* Mobile Settlement Flow */
+    .settlement-user-flow {
+      flex-direction: column;
+      gap: 1rem;
+    }
+
+    .settlement-payer, .settlement-receiver {
+      order: 1;
+    }
+
+    .settlement-arrow-section {
+      order: 2;
+    }
+
+    .settlement-flow-arrow {
+      transform: rotate(90deg);
+      font-size: 1.5rem;
+    }
+
+    .settlement-amount-large {
+      font-size: 1.3rem;
+    }
   }
 </style>
\ No newline at end of file
diff --git a/src/routes/cospend/payments/+page.svelte b/src/routes/cospend/payments/+page.svelte
index b85cfa5..ebd426d 100644
--- a/src/routes/cospend/payments/+page.svelte
+++ b/src/routes/cospend/payments/+page.svelte
@@ -3,6 +3,7 @@
   import { goto } from '$app/navigation';
   import ProfilePicture from '$lib/components/ProfilePicture.svelte';
   import { getCategoryEmoji, getCategoryName } from '$lib/utils/categories';
+  import { isSettlementPayment, getSettlementIcon, getSettlementReceiver } from '$lib/utils/settlements';
 
   export let data;
 
@@ -135,24 +136,45 @@
   {:else}
     <div class="payments-grid">
       {#each payments as payment}
-        <div class="payment-card">
+        <div class="payment-card" class:settlement-card={isSettlementPayment(payment)}>
           <div class="payment-header">
-            <div class="payment-title-section">
-              <ProfilePicture username={payment.paidBy} size={40} />
-              <div class="payment-title">
-                <div class="title-with-category">
-                  <span class="category-emoji">{getCategoryEmoji(payment.category || 'groceries')}</span>
-                  <h3>{payment.title}</h3>
+            {#if isSettlementPayment(payment)}
+              <div class="settlement-flow">
+                <div class="settlement-user-from">
+                  <ProfilePicture username={payment.paidBy} size={32} />
+                  <span class="username">{payment.paidBy}</span>
                 </div>
-                <div class="payment-meta">
-                  <span class="category-name">{getCategoryName(payment.category || 'groceries')}</span>
-                  <span class="date">{formatDate(payment.date)}</span>
-                  <span class="amount">{formatCurrency(payment.amount)}</span>
+                <div class="settlement-arrow">
+                  <span class="arrow">→</span>
+                  <span class="settlement-badge-small">Settlement</span>
+                </div>
+                <div class="settlement-user-to">
+                  <ProfilePicture username={getSettlementReceiver(payment)} size={32} />
+                  <span class="username">{getSettlementReceiver(payment)}</span>
                 </div>
               </div>
-            </div>
-            {#if payment.image}
-              <img src={payment.image} alt="Receipt" class="receipt-thumb" />
+              <div class="settlement-amount">
+                <span class="amount settlement-amount-text">{formatCurrency(payment.amount)}</span>
+                <span class="date">{formatDate(payment.date)}</span>
+              </div>
+            {:else}
+              <div class="payment-title-section">
+                <ProfilePicture username={payment.paidBy} size={40} />
+                <div class="payment-title">
+                  <div class="title-with-category">
+                    <span class="category-emoji">{getCategoryEmoji(payment.category || 'groceries')}</span>
+                    <h3>{payment.title}</h3>
+                  </div>
+                  <div class="payment-meta">
+                    <span class="category-name">{getCategoryName(payment.category || 'groceries')}</span>
+                    <span class="date">{formatDate(payment.date)}</span>
+                    <span class="amount">{formatCurrency(payment.amount)}</span>
+                  </div>
+                </div>
+              </div>
+              {#if payment.image}
+                <img src={payment.image} alt="Receipt" class="receipt-thumb" />
+              {/if}
             {/if}
           </div>
 
@@ -339,6 +361,71 @@
     box-shadow: 0 4px 16px rgba(0, 0, 0, 0.15);
   }
 
+  .settlement-card {
+    background: linear-gradient(135deg, #f8fff9, #f0f8f0);
+    border: 2px solid #28a745;
+  }
+
+  .settlement-card:hover {
+    box-shadow: 0 4px 16px rgba(40, 167, 69, 0.2);
+  }
+
+  .settlement-flow {
+    display: flex;
+    align-items: center;
+    gap: 0.75rem;
+    flex: 1;
+  }
+
+  .settlement-user-from, .settlement-user-to {
+    display: flex;
+    align-items: center;
+    gap: 0.5rem;
+  }
+
+  .settlement-user-from .username,
+  .settlement-user-to .username {
+    font-weight: 500;
+    color: #28a745;
+  }
+
+  .settlement-arrow {
+    display: flex;
+    flex-direction: column;
+    align-items: center;
+    gap: 0.25rem;
+  }
+
+  .settlement-arrow .arrow {
+    color: #28a745;
+    font-size: 1.2rem;
+    font-weight: bold;
+  }
+
+  .settlement-badge-small {
+    background: linear-gradient(135deg, #28a745, #20c997);
+    color: white;
+    padding: 0.125rem 0.375rem;
+    border-radius: 0.75rem;
+    font-size: 0.65rem;
+    font-weight: 500;
+    text-transform: uppercase;
+    letter-spacing: 0.025em;
+  }
+
+  .settlement-amount {
+    display: flex;
+    flex-direction: column;
+    align-items: flex-end;
+    gap: 0.25rem;
+  }
+
+  .settlement-amount-text {
+    font-size: 1.1rem;
+    font-weight: 600;
+    color: #28a745;
+  }
+
   .payment-header {
     display: flex;
     justify-content: space-between;
diff --git a/src/routes/cospend/settle/+page.server.ts b/src/routes/cospend/settle/+page.server.ts
new file mode 100644
index 0000000..61409f0
--- /dev/null
+++ b/src/routes/cospend/settle/+page.server.ts
@@ -0,0 +1,13 @@
+import type { PageServerLoad } from './$types';
+import { redirect } from '@sveltejs/kit';
+
+export const load: PageServerLoad = async ({ locals }) => {
+  const auth = await locals.auth();
+  if (!auth || !auth.user) {
+    throw redirect(302, '/login');
+  }
+
+  return {
+    session: auth
+  };
+};
\ No newline at end of file
diff --git a/src/routes/cospend/settle/+page.svelte b/src/routes/cospend/settle/+page.svelte
new file mode 100644
index 0000000..7bde4b4
--- /dev/null
+++ b/src/routes/cospend/settle/+page.svelte
@@ -0,0 +1,615 @@
+<script>
+  import { onMount } from 'svelte';
+  import { goto } from '$app/navigation';
+  import ProfilePicture from '$lib/components/ProfilePicture.svelte';
+  import { PREDEFINED_USERS, isPredefinedUsersMode } from '$lib/config/users';
+
+  export let data;
+
+  let debtData = {
+    whoOwesMe: [],
+    whoIOwe: [],
+    totalOwedToMe: 0,
+    totalIOwe: 0
+  };
+  let loading = true;
+  let error = null;
+  let selectedSettlement = null;
+  let settlementAmount = '';
+  let submitting = false;
+  let predefinedMode = isPredefinedUsersMode();
+
+  onMount(async () => {
+    await fetchDebtData();
+  });
+
+  async function fetchDebtData() {
+    try {
+      loading = true;
+      const response = await fetch('/api/cospend/debts');
+      if (!response.ok) {
+        throw new Error('Failed to fetch debt data');
+      }
+      debtData = await response.json();
+      
+      // For predefined mode with 2 users, auto-select the debt if there's only one
+      if (predefinedMode && PREDEFINED_USERS.length === 2) {
+        const totalDebts = debtData.whoOwesMe.length + debtData.whoIOwe.length;
+        if (totalDebts === 1) {
+          if (debtData.whoOwesMe.length === 1) {
+            selectedSettlement = {
+              type: 'receive',
+              from: debtData.whoOwesMe[0].username,
+              to: data.session?.user?.nickname,
+              amount: debtData.whoOwesMe[0].netAmount,
+              description: `Settlement: ${debtData.whoOwesMe[0].username} pays ${data.session?.user?.nickname}`
+            };
+            settlementAmount = debtData.whoOwesMe[0].netAmount.toString();
+          } else if (debtData.whoIOwe.length === 1) {
+            selectedSettlement = {
+              type: 'pay',
+              from: data.session?.user?.nickname,
+              to: debtData.whoIOwe[0].username,
+              amount: debtData.whoIOwe[0].netAmount,
+              description: `Settlement: ${data.session?.user?.nickname} pays ${debtData.whoIOwe[0].username}`
+            };
+            settlementAmount = debtData.whoIOwe[0].netAmount.toString();
+          }
+        }
+      }
+    } catch (err) {
+      error = err.message;
+    } finally {
+      loading = false;
+    }
+  }
+
+  function selectSettlement(type, user, amount) {
+    const currentUser = data.session?.user?.nickname;
+    if (type === 'receive') {
+      selectedSettlement = {
+        type: 'receive',
+        from: user,
+        to: currentUser,
+        amount: amount,
+        description: `Settlement: ${user} pays ${currentUser}`
+      };
+    } else {
+      selectedSettlement = {
+        type: 'pay',
+        from: currentUser,
+        to: user,
+        amount: amount,
+        description: `Settlement: ${currentUser} pays ${user}`
+      };
+    }
+    settlementAmount = amount.toString();
+  }
+
+  async function processSettlement() {
+    if (!selectedSettlement || !settlementAmount) {
+      error = 'Please select a settlement and enter an amount';
+      return;
+    }
+
+    const amount = parseFloat(settlementAmount);
+    if (isNaN(amount) || amount <= 0) {
+      error = 'Please enter a valid positive amount';
+      return;
+    }
+
+    if (amount > selectedSettlement.amount) {
+      error = 'Settlement amount cannot exceed the debt amount';
+      return;
+    }
+
+    try {
+      submitting = true;
+      error = null;
+
+      // Create a settlement payment
+      const payload = {
+        title: `Settlement Payment`,
+        description: selectedSettlement.description,
+        amount: amount,
+        paidBy: selectedSettlement.from,
+        date: new Date().toISOString().split('T')[0],
+        category: 'settlement', // Using settlement category
+        splitMethod: 'full',
+        splits: [
+          {
+            username: selectedSettlement.from,
+            amount: -amount // Payer gets negative (receives money back)
+          },
+          {
+            username: selectedSettlement.to,
+            amount: amount // Receiver owes money
+          }
+        ]
+      };
+
+      const response = await fetch('/api/cospend/payments', {
+        method: 'POST',
+        headers: {
+          'Content-Type': 'application/json'
+        },
+        body: JSON.stringify(payload)
+      });
+
+      if (!response.ok) {
+        const errorData = await response.json();
+        throw new Error(errorData.message || 'Failed to record settlement');
+      }
+
+      // Redirect back to dashboard
+      goto('/cospend');
+    } catch (err) {
+      error = err.message;
+    } finally {
+      submitting = false;
+    }
+  }
+
+  function formatCurrency(amount) {
+    return new Intl.NumberFormat('de-CH', {
+      style: 'currency',
+      currency: 'CHF'
+    }).format(amount);
+  }
+</script>
+
+<svelte:head>
+  <title>Settle Debts - Cospend</title>
+</svelte:head>
+
+<main class="settle-main">
+  <div class="header-section">
+    <h1>Settle Debts</h1>
+    <p>Record payments to settle outstanding debts between users</p>
+  </div>
+
+  {#if loading}
+    <div class="loading">Loading debt information...</div>
+  {:else if error}
+    <div class="error">Error: {error}</div>
+  {:else if debtData.whoOwesMe.length === 0 && debtData.whoIOwe.length === 0}
+    <div class="no-debts">
+      <h2>🎉 All Settled!</h2>
+      <p>No outstanding debts to settle. Everyone is even!</p>
+      <div class="actions">
+        <a href="/cospend" class="btn btn-primary">Back to Dashboard</a>
+      </div>
+    </div>
+  {:else}
+    <div class="settlement-container">
+      <!-- Available Settlements -->
+      <div class="available-settlements">
+        <h2>Available Settlements</h2>
+        
+        {#if debtData.whoOwesMe.length > 0}
+          <div class="settlement-section">
+            <h3>Money You're Owed</h3>
+            {#each debtData.whoOwesMe as debt}
+              <div class="settlement-option" 
+                   class:selected={selectedSettlement?.type === 'receive' && selectedSettlement?.from === debt.username}
+                   on:click={() => selectSettlement('receive', debt.username, debt.netAmount)}>
+                <div class="settlement-user">
+                  <ProfilePicture username={debt.username} size={40} />
+                  <div class="user-details">
+                    <span class="username">{debt.username}</span>
+                    <span class="debt-amount">owes you {formatCurrency(debt.netAmount)}</span>
+                  </div>
+                </div>
+                <div class="settlement-action">
+                  <span class="action-text">Receive Payment</span>
+                </div>
+              </div>
+            {/each}
+          </div>
+        {/if}
+
+        {#if debtData.whoIOwe.length > 0}
+          <div class="settlement-section">
+            <h3>Money You Owe</h3>
+            {#each debtData.whoIOwe as debt}
+              <div class="settlement-option"
+                   class:selected={selectedSettlement?.type === 'pay' && selectedSettlement?.to === debt.username}
+                   on:click={() => selectSettlement('pay', debt.username, debt.netAmount)}>
+                <div class="settlement-user">
+                  <ProfilePicture username={debt.username} size={40} />
+                  <div class="user-details">
+                    <span class="username">{debt.username}</span>
+                    <span class="debt-amount">you owe {formatCurrency(debt.netAmount)}</span>
+                  </div>
+                </div>
+                <div class="settlement-action">
+                  <span class="action-text">Make Payment</span>
+                </div>
+              </div>
+            {/each}
+          </div>
+        {/if}
+      </div>
+
+      <!-- Settlement Details -->
+      {#if selectedSettlement}
+        <div class="settlement-details">
+          <h2>Settlement Details</h2>
+          
+          <div class="settlement-summary">
+            <div class="settlement-flow">
+              <div class="user-from">
+                <ProfilePicture username={selectedSettlement.from} size={48} />
+                <span class="username">{selectedSettlement.from}</span>
+                {#if selectedSettlement.from === data.session?.user?.nickname}
+                  <span class="you-badge">You</span>
+                {/if}
+              </div>
+              <div class="flow-arrow">→</div>
+              <div class="user-to">
+                <ProfilePicture username={selectedSettlement.to} size={48} />
+                <span class="username">{selectedSettlement.to}</span>
+                {#if selectedSettlement.to === data.session?.user?.nickname}
+                  <span class="you-badge">You</span>
+                {/if}
+              </div>
+            </div>
+            
+            <div class="settlement-amount-section">
+              <label for="amount">Settlement Amount</label>
+              <div class="amount-input">
+                <span class="currency">CHF</span>
+                <input 
+                  id="amount"
+                  type="number" 
+                  step="0.01" 
+                  min="0.01"
+                  max={selectedSettlement.amount}
+                  bind:value={settlementAmount}
+                  placeholder="0.00"
+                />
+              </div>
+              <small class="max-amount">
+                Maximum: {formatCurrency(selectedSettlement.amount)}
+              </small>
+            </div>
+
+            <div class="settlement-description">
+              <strong>Description:</strong> {selectedSettlement.description}
+            </div>
+          </div>
+
+          <div class="settlement-actions">
+            <button 
+              class="btn btn-settlement" 
+              on:click={processSettlement}
+              disabled={submitting || !settlementAmount}>
+              {#if submitting}
+                Recording Settlement...
+              {:else}
+                Record Settlement
+              {/if}
+            </button>
+            <button class="btn btn-secondary" on:click={() => selectedSettlement = null}>
+              Cancel
+            </button>
+          </div>
+        </div>
+      {/if}
+    </div>
+
+    <div class="back-actions">
+      <a href="/cospend" class="btn btn-secondary">← Back to Dashboard</a>
+    </div>
+  {/if}
+</main>
+
+<style>
+  .settle-main {
+    max-width: 1000px;
+    margin: 0 auto;
+    padding: 2rem;
+  }
+
+  .header-section {
+    text-align: center;
+    margin-bottom: 2rem;
+  }
+
+  .header-section h1 {
+    color: #333;
+    margin-bottom: 0.5rem;
+  }
+
+  .header-section p {
+    color: #666;
+    font-size: 1.1rem;
+  }
+
+  .loading, .error {
+    text-align: center;
+    padding: 2rem;
+    font-size: 1.1rem;
+  }
+
+  .error {
+    color: #d32f2f;
+    background-color: #ffebee;
+    border-radius: 0.5rem;
+    margin-bottom: 1rem;
+  }
+
+  .no-debts {
+    text-align: center;
+    padding: 3rem 2rem;
+    background: white;
+    border-radius: 1rem;
+    box-shadow: 0 2px 8px rgba(0, 0, 0, 0.1);
+  }
+
+  .no-debts h2 {
+    color: #28a745;
+    margin-bottom: 1rem;
+  }
+
+  .settlement-container {
+    display: grid;
+    gap: 2rem;
+    grid-template-columns: 1fr 1fr;
+    margin-bottom: 2rem;
+  }
+
+  @media (max-width: 768px) {
+    .settlement-container {
+      grid-template-columns: 1fr;
+    }
+  }
+
+  .available-settlements {
+    background: white;
+    padding: 1.5rem;
+    border-radius: 1rem;
+    box-shadow: 0 2px 8px rgba(0, 0, 0, 0.1);
+  }
+
+  .settlement-section {
+    margin-bottom: 2rem;
+  }
+
+  .settlement-section h3 {
+    color: #333;
+    margin-bottom: 1rem;
+    font-size: 1.1rem;
+  }
+
+  .settlement-option {
+    display: flex;
+    justify-content: space-between;
+    align-items: center;
+    padding: 1rem;
+    border: 2px solid #e9ecef;
+    border-radius: 0.75rem;
+    margin-bottom: 0.75rem;
+    cursor: pointer;
+    transition: all 0.2s ease;
+  }
+
+  .settlement-option:hover {
+    border-color: #28a745;
+    box-shadow: 0 2px 8px rgba(40, 167, 69, 0.1);
+  }
+
+  .settlement-option.selected {
+    border-color: #28a745;
+    background-color: #f8fff9;
+  }
+
+  .settlement-user {
+    display: flex;
+    align-items: center;
+    gap: 1rem;
+    flex: 1;
+  }
+
+  .user-details {
+    display: flex;
+    flex-direction: column;
+    gap: 0.25rem;
+  }
+
+  .username {
+    font-weight: 600;
+    color: #333;
+  }
+
+  .debt-amount {
+    color: #666;
+    font-size: 0.9rem;
+  }
+
+  .settlement-action {
+    color: #28a745;
+    font-weight: 500;
+  }
+
+  .settlement-details {
+    background: white;
+    padding: 1.5rem;
+    border-radius: 1rem;
+    box-shadow: 0 2px 8px rgba(0, 0, 0, 0.1);
+    height: fit-content;
+  }
+
+  .settlement-summary {
+    margin-bottom: 1.5rem;
+  }
+
+  .settlement-flow {
+    display: flex;
+    align-items: center;
+    justify-content: center;
+    gap: 1rem;
+    margin-bottom: 1.5rem;
+    padding: 1rem;
+    background-color: #f8f9fa;
+    border-radius: 0.5rem;
+  }
+
+  .user-from, .user-to {
+    display: flex;
+    flex-direction: column;
+    align-items: center;
+    gap: 0.5rem;
+  }
+
+  .flow-arrow {
+    font-size: 1.5rem;
+    color: #28a745;
+    font-weight: bold;
+  }
+
+  .you-badge {
+    background-color: #1976d2;
+    color: white;
+    padding: 0.125rem 0.5rem;
+    border-radius: 1rem;
+    font-size: 0.75rem;
+    font-weight: 500;
+  }
+
+  .settlement-amount-section {
+    margin-bottom: 1rem;
+  }
+
+  .settlement-amount-section label {
+    display: block;
+    margin-bottom: 0.5rem;
+    font-weight: 600;
+    color: #333;
+  }
+
+  .amount-input {
+    display: flex;
+    align-items: center;
+    background: #f8f9fa;
+    border: 1px solid #ced4da;
+    border-radius: 0.375rem;
+    padding: 0.5rem;
+  }
+
+  .currency {
+    color: #666;
+    font-weight: 500;
+    margin-right: 0.5rem;
+  }
+
+  .amount-input input {
+    border: none;
+    background: none;
+    flex: 1;
+    padding: 0.25rem;
+    font-size: 1rem;
+  }
+
+  .amount-input input:focus {
+    outline: none;
+  }
+
+  .max-amount {
+    color: #666;
+    font-size: 0.85rem;
+    margin-top: 0.25rem;
+    display: block;
+  }
+
+  .settlement-description {
+    color: #333;
+    font-size: 0.9rem;
+    padding: 1rem;
+    background-color: #f8f9fa;
+    border-radius: 0.375rem;
+  }
+
+  .settlement-actions {
+    display: flex;
+    gap: 1rem;
+    justify-content: center;
+  }
+
+  .btn {
+    padding: 0.75rem 1.5rem;
+    border: none;
+    border-radius: 0.375rem;
+    font-weight: 600;
+    cursor: pointer;
+    text-decoration: none;
+    display: inline-block;
+    text-align: center;
+    transition: all 0.2s ease;
+  }
+
+  .btn-primary {
+    background-color: #1976d2;
+    color: white;
+  }
+
+  .btn-primary:hover {
+    background-color: #1565c0;
+  }
+
+  .btn-secondary {
+    background-color: #f5f5f5;
+    color: #333;
+    border: 1px solid #ddd;
+  }
+
+  .btn-secondary:hover {
+    background-color: #e8e8e8;
+  }
+
+  .btn-settlement {
+    background: linear-gradient(135deg, #28a745, #20c997);
+    color: white;
+  }
+
+  .btn-settlement:hover:not(:disabled) {
+    background: linear-gradient(135deg, #20c997, #1e7e34);
+  }
+
+  .btn-settlement:disabled {
+    opacity: 0.6;
+    cursor: not-allowed;
+  }
+
+  .back-actions {
+    text-align: center;
+    margin-top: 2rem;
+  }
+
+  .actions {
+    margin-top: 1.5rem;
+  }
+
+  @media (max-width: 600px) {
+    .settle-main {
+      padding: 1rem;
+    }
+
+    .settlement-flow {
+      flex-direction: column;
+      gap: 1rem;
+    }
+
+    .flow-arrow {
+      transform: rotate(90deg);
+    }
+
+    .settlement-actions {
+      flex-direction: column;
+    }
+
+    .btn {
+      width: 100%;
+    }
+  }
+</style>
\ No newline at end of file