How To Write A Debt Settlement Letter

Debt is a reality that many individuals face. Once it becomes a problem, it should not be ignored since creditors can take legal action against debtors. Debt settlement is a negotiation between the two parties to consider a reduced amount as the full payment. It cancels the debt, as well as clears the debtor’s credit record.

Before acknowledging any debt and endeavoring to settle it, be sure you were the one who incurred it. You have a right to request for a confirmation, and this can be done by sending a debt validation letter. If you are certain the credit report has errors – or if you believe you were a victim of identity theft – you have a right to dispute this. Send a credit dispute letter, with the necessary proof enclosed.

If there is indeed an amount to be resolved, write a debt settlement letter to negotiate the terms of your payment.

Writing a Debt Settlement Letter:

1. Begin with the proper formal heading.

Refer to the format below:

[Date] [Debtor’s Full Name] [Debtor’s Address] [Debtor’s Telephone Number] [Credit Card Name, if the debt applies to a credit card] [Account Number] [Creditor’s Name] [Creditor’s Department] [Creditor’s Address]

Dear [Sir / Madam]:

2. In the opening paragraph, briefly and politely state the purpose of the letter.

“This is regarding account number ______ and the related debt. I humbly ask for your assistance in resolving

this account.”

3. In the same paragraph, briefly explain your situation.

Admit that you haven’t made the necessary payments. Explain your reason in a concise manner; avoid using adjectives and discussing your emotions. Make sure not to seem as if you are making excuses, and be clear that you are willing to fulfil your obligation.

“I have been unable to make the payments due to financial hardship, but I look forward to settling the debt.”

4. In the second paragraph, acknowledge the exact amount you owe.

If applicable, mention other creditors and overdue accounts. Be as truthful as necessary, as this can give your creditors a better idea of your financial situation.

5. Propose a payment plan by the third paragraph.

Offer to pay a reduced amount that you can afford. This one-time payment should be at least 50 percent of the entire debt. Specify an exact date, preferably within the next 2-4 weeks.

“I would like to propose a payment of $_____, to be made on or before _____ (date) . I ask that this amount be

accepted as full payment for the aforementioned debt.”

6. In the same paragraph, request that all negative debt be removed from your credit report, and all late fees be waived.

7. If you have been considering filing for bankruptcy, make this known.

Bankruptcy often alerts creditors. Creditors will want to collect as much money as they can from you; if you file for bankruptcy, it would mean they get nothing. They will then tend to be more amenable to your proposal and willing to work with you.

State that settlement is your only option aside from filing for bankruptcy. Be truthful but don’t use this as a threat.

8. Reinforce the fact that you are willing to fulfil your obligation to them.

“I truly desire to settle the debt in the best way possible, in a manner that satisfies both parties. If the

above proposal is acceptable, I will pay the stated amount by the specified date.”

9. Request the creditor to sign the letter if they agree to your offer, and then send it back to you.

This signed document can be a protective measure for yourself if your creditor should come after you. Ask them to keep a copy for their reference.

10. Sign the debt settlement letter.

*Sample format:

Yours truly,

[Signature] [Your Full Name]

Tips and Precautions Before Sending Your Debt Settlement Letter

– Make sure to be concise but polite. Any hint of unpleasantness may cause the creditor to reject your


– Be warned that should your creditor choose to take legal action, they may use your words against you.

Practice caution.

– Make sure you are able to commit to the plan you propose.

– Don’t attempt to settle debts with collection agencies. Negotiate directly with the creditor.

– Credit card consolidation and debt consolidation companies can indeed be helpful – but make sure debts are

managed by paying them off, not by simply increasing debt to other parties.

– After all has been settled with the amount agreed upon, request for a letter of acknowledgement from your

creditor. Its purpose is to declare that the full amount has been resolved, and that you no longer owe them

any money. Send a copy to the credit bureau to clear your record.

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