How to Write a Debt Settlement Proposal Letter
Attempting to negotiate a debt settlement can start with drafting a carefully thought-out and well-documented settlement proposal to your creditor. You may be able to lower significantly the original amount of your debt and prevent your credit score from dropping further if your creditor agrees with and accepts your proposal.
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Things You'll Need
- Updated credit report
- Copies of account statements
- Computer
- Word-processing software
- Printer
Instructions
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1
Order your credit reports from all three credit bureaus and double check the information. Also review your account information. You need to know whether the debt is still with the original creditor or if it's been sold or assigned to a collection agency.
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2
Decide on an initial settlement offer and repayment terms. Your can offer a percentage of the debt in either installments or one lump-sum payment. Be prepared to present a counteroffer in case the creditor rejects your first proposal.
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Start drafting your settlement letter. Write your creditor's name, if known, and the company's name and address on the upper left-hand side of the page. Insert a space, followed by a message line referencing your account number and your name and contact iformation. Insert another space, followed by a generic greeting.
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Propose the amount of the settlement offer in the first paragraph. Include how the debt is to be repaid and the amount of the remaining balance you are requesting the debtor to forgive.
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Specify in the second paragraph how the debt is to be reported by the three major credit bureaus. The creditor may choose to report the account as paid in full or settled, or not remove any negative entries at all.
In the third paragraph, request a signed document stating that the creditor has agreed to your terms, if that's the case.
Close the letter with "Sincerely" or another business salutation, print out two copies and sign them.
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Send a money order or certified check for your payment after you receive the creditor's signed agreement. On the memo line, write "Cashing this check constitutes payment in full" or state the payment percentage. Make copies of your letter and check to keep on file. The creditor's copy should be sent via registered mail with a return receipt.
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Draft a counteroffer if the debtor rejects your initial proposal. Outline in detail why you are unable to pay the amount the debtor requests. Restate how much you can pay and how, and resend the letter via certified mail. Request that the debtor return a signed confirmation after agreeing to the terms of the settlement.
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Tips & Warnings
Keep your letter's tone polite but firm. Do not be intimidated into agreeing to a settlement that is unreasonable or unmanageable for you to repay.
Keep records of everything involving the debt. This includes creditors' phone calls, if your state allows them, and mail correspondence.
Check your credit report regularly to ensure that your account is being reported accurately. Annualcreditreport allows consumers to order a free yearly report from the three credit bureaus: TransUnion, Experian and Equifax. You don't want to be haunted by a reminder of a settled debt years later.
Don't try to contact a creditor until you've verified whom you actually owe.
You may choose or be obligated to state in the letter that if you default on the terms of the settlement, the creditor is free to take further collection action against you.
Always pay by certified check or money order -- never give a creditor direct access to your bank account.
Don't send any payment until you've received written agreement from the creditor.
References
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