Fillable Form Debt Settlement Offer Letter

What is a Debt Settlement Offer Letter?

A debt settlement offer letter is a proposal that is presented in writing and shows that you are offering a specific amount of money in exchange for forgiveness of your debt to another person. The letter addresses why you are unable to pay the debt, how much you’re willing to pay now, and what you would like from the creditors in return. The parties must work through or agree on the terms and conditions written in the letter.

How to fill out a Debt Settlement Offer Letter?

It is important to be explicit and detailed when writing a Debt Settlement Offer Letter. Include your personal information and contact details so that you can be easily identified. Provide the amount you intend to pay, a good settlement is usually 30 to 50% of the full amount of the debt.

Indicate in the letter the situation you are in so that the creditors will truly believe that you are not capable of paying the full amount. Creditors may ask for proof regarding your financial situation especially when it is a physical injury, or loss of job, and the likes.

Name

Enter your full name.

Address

Enter your address.

City, State, ZIP

Enter the city, state, and ZIP code of your address.

Date

Enter the date when the letter is being written.

Body of the letter

The body of the letter requires you to enter the amount you are willing to offer. Enter the amount in words and in numbers.

Email

Enter your email address if it is available.

Cell

Enter your mobile cellphone number.

Home phone No.

Enter your home phone no. if it is available.

Work phone No.

Enter your work phone no. if it is available.

Signature

Provide your signature.

Frequently Asked Questions About a Debt Settlement Offer Letter

What is Debt Settlement?

Debt settlement is a detailed process wherein you negotiate terms with your creditors in hopes of them absolving you from your debt. A decent portion of the debt is proposed to the creditor, and through debt settlement, the amount will be presented upfront in exchange for the full amount to close.

These are the key steps in reaching a debt settlement:

1. You can work on your own or you can hire professionals but their fees are expensive.
2. You must save the amount you are proposing before writing the settlement letter. If your creditor agrees to the proposal, you will need to pay the amount at a given time frame.
3. Write a debt settlement offer letter to your creditor. Indicate the situation you are in and explain why you are unable to pay the full amount of the debt. Also put in the letter what you expect from them in return, such as forgiveness of the debt, or the account shown as paid in full in your statements.
4. Before sending the payment, ask for a written confirmation that your proposal has been accepted. This written confirmation may act as leverage for any future complications.
5. Send the payment and keep in touch with your creditor until all the terms and agreements specified in the written letter have been fulfilled.

What to consider before proposing a debt settlement?

Sending a debt settlement offer letter to your creditor has the potential to do both harm and good. It depends on your current situation whether this will do you good or bad. If you have the resources to pay the debt in full amount, pay the debt so that you will be free of any inconveniences in the future. If you are in an unfavorable situation, proposing a debt settlement is an option you should definitely consider.

Advantages and Disadvantages of a Debt Settlement Letter

Like many circumstances in life, writing a Debt Settlement Offer Letter has its advantages and disadvantages.

Advantages

• Debt Settlement is beneficial when you are in financial hardship.
• Settling is never guaranteed but it can put you in a better financial situation.
• If the settlement is accepted, the amount usually settles at around 50 to 80% of the full debt.

Disadvantages

• If the settlement is not accepted, the debt you originally owed may increase due to missed payments and late fees.
• If you hired professionals, you may owe them fees and payments. If the settlement is not accepted, hiring professionals only adds to your expenses.
• Debt settling often appears as a bad financial move and can damage your credit score.
• Missed payments may still be reported in your statements.
• Debt settling may cause other creditors to see you as an unreliable debtor in the future.

What percentage should I offer to settle a debt?

The percentage you should offer for your debt should be enough to allow you to manage the remaining income. Most debtors will find they cannot be as generous with creditors as they would like because of living expenses, so if your creditors were happy with a 50% offer, you would have plenty of cash for yourself, but most people do not get their creditors' agreement for this kind of offer. Do not kid yourself that an offer of 50% is realistic. If it were, you would be able to pay the debt in full, but if you could afford to do that, then you would not have got into debt in the first place.

So on one hand, lenders are not willing to accept anything less than 100%, which means that unless you can negotiate or bankruptcy is an option, for most people this leaves keeping up with repayments as the only way forward. However, even in 100% repayment plans, it may be possible to prioritize creditors by offering different percentages to different creditors.

However, if you do manage to keep up with repayments then there is nothing stopping creditors from agreeing to accept a lower repayment percentage on at least some of the debt. Sometimes creditors will agree to a settlement that involves you paying off a small amount of the debt and not carrying on with repayments on other parts. This can be a good way of seeing if they are serious about settling, because if they are not willing to accept anything less than 100% repayment then they are most likely just stringing you along. However, you cannot generally go down to 0% without negotiating — so it may be the case that creditors are willing to accept a lower settlement amount, but are not willing to allow you to repay none at all.

And of course, if you have more than one creditor then you can offer a different settlement amount to each one, which again could help convince creditors that they might be better off settling with you than going ahead and taking you to court.

How much should I offer as a full and final settlement?

How much you should offer as a full and final settlement payment depends on your debt and financial situation.

Many lenders offer a full and final settlement option because it can be less expensive for them to receive one lump sum payment instead of receiving the payments over a long period. The settling party should make sure that they can afford the full amount before making such an agreement. If not, they should consider alternatives like debt consolidation loans. Before settling, you should always review your situation with a free debt advisor.

Some types of debts where full and final settlement may be an option are credit cards, retail accounts, telephone or utility accounts, payday loans, medical bills, or other unsecured loans. For secured debts like property loans, you may be able to negotiate a different settlement option.

How do I make an offer on a debt settlement?

To negotiate your own debt settlement, follow these 5 steps:

1. Start with a phone call. Do not try to settle your debt until you have called the credit card company's customer service department and asked them for a lower interest rate or a payment plan that is more affordable. If they won't work with you, ask that your account be reviewed by a supervisor. Tell them exactly how much money you can pay every month and ask again for a lower interest rate or an affordable payment plan.
2. Get the information you need. If your request to negotiate a lower interest rate is denied, hang up and call back one more time. This time, ask the representative if you would qualify for a debt settlement program. If you do qualify, get the terms and conditions spelled out. For example, if your credit card statement has a $15 "settlement fee," find out exactly what that means. The fee may be non-negotiable, but it can also be an amount (like $100) deducted from the final settlement amount.
3. Request the information in writing. Without a written record of what you agreed to, your credit card company may deny any responsibility for the debt they previously settled with you. When you get all terms and conditions in writing, read them carefully to make sure there are no hidden fees or surprises.
4. Negotiate interest rates. This is where you will save the most money if you know what your credit score is. If your interest rate is too high (20%+), you can try to negotiate it down to as low as 10%. Even though the credit card company may not come right out and say it, many companies are willing to lower your interest rate by 2 or 3 points. This may not sound like much, but even a 3-point decrease can save you hundreds of dollars if it means your debt will be paid off faster.
5. Make your payment plan. Once you are satisfied that the terms are reasonable, inform the credit card company that you agree to settle your debt for less than what is owed. You then have to put that agreement into writing. If you cannot come up with the full settlement amount all at once, request a payment plan that is affordable for you.

Is it good to take a settlement offer from a creditor?

Accepting a settlement offer is a way to end debt. If you have been contacted by a creditor who has made you a settlement offer, it is important to make sure that the debt is paid off in full and that you really understand what happens when you accept a settlement offer.

When you accept a settlement offer, your creditor agrees to end the debt for less than what you owe. This means that you have no further legal obligation to pay the debt. It also means that if a creditor attempts to collect the difference between what you agreed to accept as a settlement offer and the full amount of your debt, they may be violating the law. This is because by accepting a settlement offer, you are indicating that you believe that your debt is already paid in full.

Will my creditors accept my offer?

Your creditors may or may not accept your debt settlement offer. It all depends on the type of debt you have. First, understand that most creditors will not be willing to give up part of the money you owe them — even if you offer it. This is because they believe, with some justification, that they would incur more costs in processing and managing your payments over time than they would gain by accepting a smaller lump sum. This is why you must remember that your creditor believes they have a right to everything you owe them. If the debtor offers a settlement, the chances are much greater it will be accepted if the debt is one of these:

• Secured Debt — This means that the loan was backed by a piece of property that serves as collateral for the loan. For example, if you took out a car or home equity loan, the property that you use to secure the debt is your collateral. A mortgage would be an unsecured debt because real estate can't be used as collateral for a loan and it's not backed by anything. If the creditor agrees to accept less than they're owed, they will normally sell your property and apply the proceeds to pay off the loan — the creditor is required to do this by law.

If you own a home and decide to stop paying your mortgage, you'd better think twice. Your missed payments could eventually cost you your house. If you do decide to stop making payments, make sure that it is really what you want to do and not just a momentary impulse.

• Unsecured Debt — This is when the creditor loans money based on their confidence in your creditworthiness. It usually involves borrowing money from a financial institution such as a bank, credit union, or finance company. Credit card companies fall into this group — they don't ask for collateral in exchange for the money you borrow, only your promise to repay.

If you choose to settle an unsecured debt, the creditor cannot force you to sell any assets or take anything away from you, except if the creditor does this with all of their other customers. You can offer to pay them less than what they're owed, but there's no guarantee they'll accept.

Can you negotiate debt settlement?

Negotiation debt settlement on your own may not be easy, but it is worth it. It can save you time and money compared to hiring a third party that will process and negotiate the debt settlement for you. Keep this in mind as you go through the process.

If you have a large enough amount of debt to settle, then it may be worth your time and effort to work out a payment plan outside of a formal settlement with each creditor.

What happens if you pay a settlement offer?

Paying a debt settlement may affect your credit scores; however, it is better than not paying at all. The only way to know how the debt settlement will affect your credit scores is by obtaining copies of your credit reports. In general, when you settle a debt, your credit report will show a status of "paid as agreed." It may show the amount of payment showing that you settled for less than the full amount owed. This will most likely lower your credit scores because it indicates to lenders you were unable to pay the full balance on time, despite your best efforts.

Moreover, if you are looking to obtain new loans in the near future, keep in mind that some lenders review up to 10 years of credit information when deciding whether or not to extend a loan. This means that if you have ignored paying any old debts or accounts in collections, you may have a hard time getting a loan because of your recent history.

Is it worth partially settling a debt?

If you cannot pay your debt in full, it is better to partially settle it. It is better to settle a debt than to not pay it or take a longer time repaying it. Yes, it may affect your credit score, but in the long run, it is better than not paying at all because you may not be able to borrow money or even get a job in the future.

Is paid in full better than settled?

Of course, it is always better to pay your debt in full than pay the partial amount. Nevertheless, when you are struggling financially, settling debt is better than not paying at all.

Many people, especially those who are struggling financially take the easy road out by just not paying their debt at all. This actually worsens your situation because now you have to deal with legal consequences. Moreover, your credit score would be negatively affected as well.

What should you not say to a debt collector?

You should never give the following information to a debt collector:

• Your bank account numbers or credit card account numbers
• Your Social Security Number or any other personal identification information — A debt collector may not use this information to try and collect a debt from you.
• Your contact information — Such as your home phone number or Address

Be aware that most debt collectors are required by law to provide written notice that they are attempting to collect a debt. The notice will include the name of the creditor, and an explanation of your rights under the federal Fair Debt Collection Practices Act (FDCPA).

How do you write a debt settlement letter?

Your debt settlement should include the following information:

• Your name, current contact information, and current employer.
• A list of your creditors along with their phone numbers, email addresses, and amount owed to each creditor.
• A description of the reason you are struggling financially which led you to seek debt settlement. You should be as detailed as possible without going into unnecessary detail, remember that you are writing a one-page document.
• A list of each creditor that you wish to include in the settlement agreement with their current balance owed, original balance owed, and the minimum amount which you will settle for. You should be willing to settle with every listed creditor if the minimum is met by all creditors, don't list any creditor unless you are willing to settle with them.
• A general explanation of how you plan on repaying your creditors and the timeline for doing so. You should include at minimum two years as a reasonable timeline, such as "I can repay my debts within 24 months."
• An agreement that the creditor will accept the settlement amount over a period of time (usually from one to five years) without trying to collect any interest or fees.
• A clause in the agreement that states you will not commit to another debt settlement during the payout period and a clause in which you agree not to contact the creditor about the balance owed after settlement has been reached.
• An agreement that if your debt is resold or transferred to another creditor, your settlement will still stand and you will be able to continue making the monthly payments as listed.
• An agreement that after one year of making consistent monthly payments that any negative marks on your credit report caused by the collections activity will be removed.
• A "legalese" statement at the bottom that states you have read, understood, and agreed to the terms of the settlement.
• Your signature and date.

What is a final debt settlement letter?

A final debt settlement letter is used to formally notify a creditor that you will not be paying the full balance owed on your account and to explain any arrangements for payment that have been made. It is often used when you've already decided, or it has become clear to you, that you cannot afford to repay the entire balance on outstanding debt. If this applies to you, it is best to be proactive and contact your creditors because by speaking with them early on in the process, they are more likely to consider your offer.

It may be that you have already tried speaking to your creditors about a potential debt solution but this has not led to an agreement. In these circumstances, before writing your final settlement letter it is important to consider whether you are ready and willing to follow through on your plan. This is because although your creditor might be more likely to agree to a deal, this doesn't necessarily mean they will accept the one you have proposed. If no agreement can be reached, you could find yourself being taken to court.

What should I include in my final debt settlement letter?

When drafting your letter it is vital that you remain courteous and diplomatic at all times. If possible try to keep copies of previous correspondence so that you can quote figures and dates if necessary to back up your points.

In the first paragraph of the letter, you should say what account you are writing about and why you expect it to be settled for a lesser amount than the total owed. It might be helpful to mention that you have tried several times to make payment arrangements or that you were previously unaware of the full amount owing on the account.

In some cases, you might be able to give specific details about why you are not in a position to pay the full amount. For example, if you have lost your job or had an unexpected expense. If this is your first settlement offer then it is advisable to leave out this kind of information unless you feel it would be helpful to your case.

You should then provide an explanation of how you intend to clear the balance of your debt, for example by offering a lumpsum payment or monthly installments. You might like to suggest that this money will come from savings or benefits if at all possible.

Finally, you should make it clear that you understand what will happen if your offer is rejected. For example, you could say something along the lines of: "If I am not able to make a satisfactory arrangement with you within 14 days then I may have no choice but to take out a final debt solution such as bankruptcy."

What to expect after sending your letter?

You will be anxious to see if your creditor accepts or rejects the request after submitting your message. Having a reply date in your letter would help your chances of a timely reply for this reason. As you wait, if they consider your bid, make sure you have saved up the agreed sum of money and are ready to pay. Requesting proof that they have received your payment may also be a smart idea.

Check your credit report and account to make sure that the necessary changes have appeared. Debt settlement may relieve you of your debt, but it may have a negative impact on your financial health. When you settle a debt, it appears on your reports for some time and if other lenders see this, then you might have a hard time applying for loans in the future.

Debt settlement can be worth your while if a hardship causes you to find yourself struggling. Note that it's very important to be careful with your words when writing a letter. When it comes to liability, a well-thought-out debt settlement letter will make all the difference. This helps to ensure that their side of the deal is upheld by all parties.

Since your credit score may be negatively affected, you may feel insecure about settling your debt. You may be afraid of creditors believing that you are a bad candidate for potential financial applications. Bear in mind that for individuals working towards restoring their credit, there are still many credit card and loan options out there.