Debt Settlement Letter

A debt settlement letter provides the creditor with an opportunity to settle a debt for less than owed. These letters most often come directly from the creditor, or a collection agency working on behalf of the creditor, but may also originate from the debtor.

Consider all ways to pay off debt.

One type of debt settlement letter is the type sent by a creditor. Creditors send these letters, usually, for one of two reasons.

• Getting Something: If the lender who originated the account still owns it, the lender may send a settlement letter. Lenders send this type of letter because it is in the company's best interest to try to get at least part of the outstanding debt owed paid. Whenever a borrower ignores requests from the creditor about the debt they owe, they show the lender they have no real intention of paying the debt. This leads the creditor to try to settle the debt through a negotiated settlement payment. Many times, this payment will be significantly less than the actual balance owed to the creditor.
• Sold to Collection Agency: At some point, a creditor may sell delinquent accounts to a collection agency for a partial amount of the outstanding balance. This usually occurs when the account is delinquent for several months. To receive some of the money owed, the creditor then issues a debt settlement letter to the debtor, trying to reclaim some of the money owed.

As a debtor, or someone who owes a debt, initiating a debt settlement letter may be possible. It is important to realize when you need help paying down debt. Avoid the mistake of waiting for the creditor to contact you. Never avoid or ignore a debt. Rather, contact your creditor as soon as you know you cannot make the minimum payment. The creditor may or may not offer solutions to getting you caught up in payments.

Those who avoid contacting their creditors are likely to receive phone calls and pursued aggressively by collection agencies, attorneys and the creditor themselves. In addition, your credit score will see a significant impact as a result of your lack of attention to your debts.

One way around this negative situation, even when you are unable to continue to make minimum payments, is to negotiate a debt settlement. Explain to the creditor what is happening with your financial situation. Be sure to inform them of your willingness to remain in good standing. If you have a lump sum payment that you can make, or you can make significant payments over a few months, request a debt settlement. If both you and the creditor agree upon the settlement, be sure to get this in writing. This debt settlement letter should outline the terms of the agreement including that you will only be responsible for repaying a set amount. The letter should specifically say that the debt settlement will settle the debt in full.

Debt settlement may be a good thing for many people, but it is not the right option for everyone. If you hope to get a letter to settle a debt, or you have received one, act quickly and make a decision that fits your lifestyle and financial situation.

• Notice if there is an expiration for the debt settlement offer. Many times, you will have a limited amount of time to respond to such an offer before it will no longer be available.
• Do negotiate the debt with the creditor. If the settlement is too high, or you cannot make the payment as requested, contact the lender and make a request that is more reasonable.
• Do not expect to pay very little to settle the debt. Although some settlements are as low as 50 percent owed, this is not normal. Most will reduce debt by 20 to 30 percent.
• If you debt is mostly interest and fees, rather than purchases, be sure to inform the creditor of this. It may help to reduce the debt owed.

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