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The Ultimate Guide to Debt Settlement Letters with Templates

If you cannot pay a large debt, you might be interested in debt settlement. It is an agreement where the creditor or debt collector forgives a portion of the debt due to the debtor's financial hardship.

Unhindered, clear communication is the essence of this debt relief option's success, as it revolves around negotiating with creditors to settle an offer.

If you want to work with a debt settlement company like ours, we can negotiate on your behalf, so you don't need to get into the nitty-gritty of the process.

You can check out our Guide to Debt Settlement to better understand whether the debt relief option is for you and what you can expect if you work with a settlement agency.

However, if you choose to settle your debt yourself, you must consider many aspects of the process, like the letters.

Written letters are an essential mode of communication in the debt settlement process, and whether or not you use them right will determine your settlement success.

So, in this post, we present you with a complete guide to debt settlement letters and templates.

What are Debt Settlement Letters & Why Does it Matter?

A debt settlement letter is a tool to negotiate with your creditors and settle your debt at a lump sum payment you're comfortable making.

Most debt settlement negotiation processes start with a phone call and then go on to letters. It's also possible to get into a verbal agreement with your creditor over the phone. But even then, we recommend using letters to maintain communication, as it will help you keep a paper trail and stop creditors from going back on their word.

Written debt settlement letters also work best to convey the clear and detailed terms you have for your creditor. For example, through letters, you can clarify why you cannot pay the debt, how much you're willing to pay, and what you would like from the creditors in return.

It's a simple but great tool that can work for you if you can use it right.

Things to Consider Before Sending a Debt Settlement Letter

Sending a debt settlement letter can do both harm and good. So, it's best to consider both sides carefully before starting your negotiation.

Here are the pros and cons of sending a negotiation letter -

Pros of Sending Debt Negotiation Letter

  • Pay off your debt at less than what you owe
  • Save a lot of money
  • Drop late fees and penalties
  • Get out of debt within three years

Cons of Sending Debt Negotiation Letter

  • There are no guarantee collectors will accept your terms
  • The settlement will show on your credit report, and your score will take a hit
  • If you save more than $600, you'll have to pay tax on the savings

Note: The cons are an acceptable trade-off if you have a high amount of unpaid unsecured debt and your DTI is over 50%.

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Types of Settlement Letters - Debt Settlement Letter Templates Included

Settlement letters for debt are of several types. Which type of letter you use depends on your goal and the debt settlement negotiation stage you and your creditor/collection agency are at.

Types of debt settlement proposal letters and when to use them (click on the links to find the templates) -

  • Acceptance letter of a verbal offer - If you verbally negotiate a deal to settle your debts with your creditor or debt collector, it's essential to put the terms and offer in writing to make it binding. This is where the acceptance letter comes in handy.
  • Debt settlement counteroffer letter in response to creditor's proposal - If a creditor sends you their proposal after receiving yours, but you cannot afford the payment asked for, use this letter.
  • Counteroffer letter for an unsolicited settlement offer - If you're more than 180 days past your last payment, your creditor or a debt collector may contact you with a settlement offer. If you cannot afford to pay the amount asked, you can pitch them a counteroffer using this letter.
  • Debt settlement agreement letter - This letter is a binding legal document that explicitly states the debt settlement terms and offers. After the agreement gets signed by the creditor/collector, the negotiation concludes, and you can send the settlement amount.
  • Pay-for-delete agreement letter - If you have negative items on your report that you'd like to remove, you can write a pay-for-delete letter to your creditor or collection agency. The letter states that you'll pay in exchange for removing the information.
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Writing a Debt Settlement Proposal Letter - An Overview

Writing a debt settlement letter can be challenging. If you fail to communicate persuasively and include all the essential elements, your chances of qualifying for a settlement will be significantly lower.

So, if you have doubts about your letter-writing skills, it's best to hire debt settlement professionals to write and negotiate the debt for you.

But if you want to take things into your hand, here's a checklist to remember -

The Address

This is the most fundamental section of your letter. Any mistake in this part will lower your credibility.

You must write two addresses, your address and your creditor's address.

Make sure you include your name, home address, and phone number in your address section.

In the creditor's address section, include the name of a contact person in the organization who will likely act on your proposal.

You should address your letter to the representative you've been working with. If there isn't a specific person, call and ask for the name of someone likely to handle your proposal.

Account Number

Ensure you include the relevant account number. Without it, your lender won't know which debt you're proposing to settle.

The Body

Your letter should be short, with no more than two or three paragraphs. Anything else isn't needed and could be misinterpreted as a "show."

To make your message clear, explain the essential points of your financial issue in the first paragraph so the reader can understand your position.

Then, in the next paragraph, present the details of your settlement offer and the terms. This will include the dollar amount you're proposing to pay and that your proposed payment will satisfy the entire debt. You can also have other terms like - after settlement, the creditor should report the account as paid with the major credit bureaus.

Remember: With the letter, you should send your financial statements as proof of your financial difficulty and a written agreement for the creditor to sign if they agree to the offer.

In the last paragraph, you should mention that the creditor sends you a written confirmation of the debt settlement offer.

It's common for a creditor to agree to a debt settlement verbally but then send the remaining balance to a collections agency.


Your letter will require your signature. If you fail to sign, the creditor may interpret that as an indication you're not serious about your settlement.

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What to Expect After Sending Debt Settlement Offer letter

There are three possibilities -

  • The creditor accepts your offer.
  • The creditor rejects your request.
  • The creditor makes a counteroffer.

If the creditor accepts and sends you the signed agreement, you can transfer them the money that you've been saving.

If they reject your offer, don't get disheartened. You can wait for the next phase of the collection process when the creditors sell their accounts to debt purchasers to get what they can for the delinquent account.

Since the debt purchasers buy these accounts for pennies on the dollar, there's a high chance they will accept a reasonable settlement offer.

If you don't want to wait, there are other debt relief avenues that you can explore, like debt management and bankruptcy.

If the creditor makes a counteroffer, carefully consider whether you can make the payment.

If you can't, keep the negotiation going by sending your counteroffer, explaining your financial situation further, and why you can't go beyond your proposed amount.

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What Is a Reasonable Offer to Settle a Debt?

Offer a specific amount of about 30% of your outstanding account balance. Typically, lenders counter with a higher percentage or dollar amount. But that's okay. It's your initial offer, and the goal here is to start negotiating with enough wiggle room.

Usually, creditors agree to accept 40% to 50% of your debt. However, it could be 80%, depending on whether you deal with a debt collector or the original creditor.

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Additional Debt Settlement Tips

Here at OVLG, we have helped over 6700 Americans be debt-free. Not only that, leveraging our negotiation skills and legal know-how, we have helped our clients save thousands, stop debt collection abuse and deal with debt-related lawsuits.

In short, we know what we're talking about when we present you these debt settlement tips so that you can successfully settle your debt -

Consider Your Financial Situation Carefully

After you decide to settle a debt, it's time to figure out what you can afford. Sit down and go through your finances with a fine-tooth comb.

What do you need to spend money on every month, and what expenses can you avoid to save up? Go to the negotiating table with a firm figure in mind.

Keep Your Story Brief and Straight

The collector or representative of the creditor you speak to on the phone isn't a counselor, although they may try to sound like one. They're employees with a purpose.

So, keep your story short and to the point. Avoid being dramatic. If you're in a difficult situation, make that clear, and tell your lender what you're trying to do to get back on track.

Know Your Rights

Don't put up with bully tactics. Under the terms of debt collection laws, creditors and debt collectors aren't legally allowed to:

  • Threaten to arrest you or say you'll be charged for failing to repay debt.
  • Pretend they work for the government or are subcontractors for government agencies like the IRS.
  • Force you to repay the debt you don't owe.
  • Insult you publicly—for example, by publishing your name on a website or social media.
  • Harass you in any way, at any time.

Take Notes When You're on the Phone

It can be stressful to talk about debt with a stranger. You may need to remember important details. So, keep a pen and paper close by so you can take notes.

Ensure you write the full name of the representative you spoke to, the time of the call, how long the call went on and what you discussed.

One more thing—jot down any bad behaviors mentioned above to create a written record of potentially illegal collection practices. You can use this as leverage in your debt settlement negotiation.

Get It in Writing

Get any settlement or repayment plan in writing as soon as possible once you conclude negotiations. Don't pay money before you see the agreement signed by the creditor or debt collector.

Stay Friendly

Debt is a nerve-wracking topic. It's easy to get emotional when talking to creditors and debt collectors, but try to be friendly and stay on-topic.

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