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Debt Settlement Offer Letter [Free Templates]

A Debt Settlement Letter: A letter drawn up by the debtor when they are unable to pay the full amount of money, but they are willing to close the debt if the lender agrees to new terms. A debt settlement letter is sent from the creditor(s) confirming an offer to settle the debt, the amount the debt settlement is for, and the date at which the debt should be paid.

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    Is Debt Settlement a Good Idea?

    After making your application for a debt settlement, it may take several months before making a settlement offer if your debt settlement plan is a success then you may be able to erase your debt quicker than making regular payments over time.

    However, if your financial situation is so complicated that you won’t be able to make any payments on your debt, then debt settlement is not a good option for you. You have to offer at least to pay a lump sum of your debt for your debt settlement to work.

    What Should be Included In a Debt Settlement Offer Letter?

    • The creditor/debt collector’s name
    • Drafted date of the letter
    • Debtors name
    • Address
    • Debtors account number or reference number linked to your account
    • Outstanding balance owed on the account
    • The amount agreed on as settlement of the debt
    • Terms and amount of payment to be made
    • The date the payment must be received

    Thing to Know Before Writing a Debt Settlement Offer Letter

    • Your credit will be damaged for seven years: A settlement reported on your credit may lead to a drop of up to 10% in your rating. When negotiating with a creditor to accept less than what is owed, the creditor will report your account as settled for less than the full amount. This will severely damage your credit rating as the mark remains on your credit report for seven years from the date of settlement.
    • Tax obligation on any amount settled on your account: If you settle your debt for less than the owed amount, then you’ll have to pay your debt settlement agency as much as 25% of your savings, and the Internal Revenue Service (IRS) may take another 25% leaving you with only a small percentage than you had planned. For instance:

    Let’s say you settle a $100,000 debt for just $50,000. The $50,000 of forgiven debt will be considered taxable, and the IRS will require that you include this as “other income” on your tax return.

    • You may be sued before ever settling your debt: The creditor may sue you for not paying your debts. This may affect your credit rating even further. If the creditor tries to contact you several times with no response, then they may have no options left but to sue.

    If your creditor sues you and they have a judgment against you, then you may decide to either file for bankruptcy or pay the amount owed in full

    • Don’t pay any amount to settlement companies until after a settlement has been arranged: The Federal Trade Commission’s Telemarketing Sales Rule ruled out in 2010 that; debt settlement companies that acquire their customers via telephone either incoming or outgoing to only charge their customers after they have reached an acceptable settlement between the creditors and the consumer. You should, therefore, avoid working with any settlement company that requires you to pay fees before it provides you with satisfactory service.

    How Debt Settlement Works

    Debt Settlement is where a consumer or their representatives offers the creditor less than the actual amount owed. Debt settlers, whether for profit or nonprofit, usually try to negotiate a payoff of just 50% of the original balance for their clients.

    Note: You can still negotiate for a debt settlement on your own. If you are confident enough in what you want to achieve, you can always succeed without the help of debt settlement agencies, the 50% result as the professional negotiator.

    You shall be required to complete two tasks by the debt settlement companies upon signing up for their services:

    • Mail letters to your creditors asking them to cease contacting you.
    • Start making monthly payments to the creditor to build up your settlement fund.

    Even though the creditor is by law prohibited from contacting you in any way after sending the letter, they may still involve their attorney and take you to court for added leverage to get you to pay your debt.

    Debt collectors/Creditors want to settle just as bad as you do. Nonetheless, it is still up to the creditor to either accept or reject your settlement offer, and you can not in any way push them to accept any offer you table before them.

    Sample Debt Settlement Letter

    [Your Name]

    [your Address]



    [Creditor’s Name]


    Dear Sir/Madam,

    Re: Debt Settlement offer

    In response to my recent conversation with one of your representatives, I’d like to present a complete assessment of my financial situation.

    I am experiencing an ongoing financial hardship, and have only been able to keep up with necessary bills. I have a lot of debt and, unfortunately, not enough funds to pay all my creditors. So, my only option is to negotiate and try to settle my debt with a few creditors. I have attached a copy of my financial statement detailing my monthly income and expenses. This will help you in assessing my financial situation and give you an idea of why I have requested for debt settlement.

    The total settlement agreed on is __. [Amount] As part of the agreement, I would like to request that you coordinate with the credit bureaus to remove any negative listings on my account from the credit report.

    I hope that you will refrain from taking any other action against me as I shall make the payments upon your acknowledgment of this letter.

    I hope you’ll understand my situation and cooperate with me in this time of my financial crisis. I am looking forward to hearing from you.



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