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Debt Settlement Letter: How To Write One

By: Michael Millington

If you’ve made the choice to engage in a “do it yourself” method of debt settlement, one of the first things you’ll need to know is how to create a debt settlement letter. The good news about these documents is that you are not the first to write such a letter, and it’s a safe bet that you won’t be the last. Knowledge about how to set up a debt settlement letter is fairly readily available. We’ve distilled it down into a few critical points to bear in mind.


Preparing a Debt Settlement Letter

The important thing to note is that there isn’t a need for complicated language. Keep it simple, and the results will likely be the best they can be. Start by briefly reviewing your outstanding debt. Date your letter, then follow it up with your account number, the name of the company that holds the debt, the company’s address, and then a simple subject line saying something like “requesting payoff of my account.” If you have the specific name of an account representative to address this to, use it. If you don’t, make an effort to find one.


Note that this would be an “official offer to pay the past-due balance of (fill in the amount) with your company.” The next part can vary depending on your circumstances, but this is where you can express your offer. Being able to offer a lump sum to settle a debt might be the best way to have your debt settled. The point of a debt settlement is to make it clear to the creditor that while the complete sum owed will be impossible to provide, a certain amount instead will be possible, and you’re willing to provide that amount instead.


Debt Settlement for a Creditor

When dealing with debt, the creditor must weigh potential consequences. The risk that a creditor runs in settling debt is that if it considers the settlement unacceptable and demands the full amount–as is its right and privilege as a creditor–you may instead declare bankruptcy. If this amount is unsecured (as are credit card debts and personal loans) the amount would likely end up discharged in bankruptcy. Then, instead of the settlement the creditor could have had, they would end up with nothing at all and you would have a bankruptcy on your credit record. It’s not a situation where anyone wins. Thus, the settlement is a situation where both sides can win at least a little; you get debt relief and can save yourself some money and your creditor gets at least part of its investment back.


It’s important to note here that the aforementioned letter is essentially requesting a change in a contract. The letter itself is therefore vital to both produce and have on hand so as to have a record of the request. Many creditors will make it part of their own original agreement with you that any changes must be both approved by the creditor and put in writing. Having a debt settlement letter on hand satisfies this stipulation.


Documenting a Debt Settlement Letter

Delivering the debt settlement letter can be fairly simple or complex. Some might believe that going all-out with the sending is important, including registered mail with signature confirmation. Others believe that a faxed letter is acceptable (for those who have a fax machine on hand). This is largely a matter of personal preference. Don’t forget to have them respond by similar documentation, preferably on their letterhead. That completes the circle and makes it clear that a change to the original credit agreement has been made. Should there be doubt later on, the end result will likely be much more favorable on your side since you will have a response from the company on its own letterhead.


A debt settlement letter can be a very valuable tool, the kind of thing that’s vital to change an agreement and make for a relatively positive outcome for all concerned. A little bit of diligence and this great alternative to bankruptcy can produce some great successes all around.