How to Write a Debt Settlement Proposal Letter?

15.04.2024

The fact is that debt can affect anyone in any period or place, regardless of age and income. This is even truer during the pandemic era. During these two years, many people found themselves in financial difficulties because of job loss or payment reductions. Hence, the need to make mortgage loans, personal, or other types of loans skyrocketed.

On the one side, there isn’t anything unusual in having some debts. The problems begin when these debts become excessive to cause stress and insecurity and harm your credit score. Luckily, there are plenty of ways to solve the problem, and one of them is debt settlement. Now there are generally two ways to settle the debt. One is through an agency specialized in this matter. Another way is to do it yourself by sending a debt settlement letter to the creditor. This is a great way to ask the creditor to ignore a part of the debt. When you do this, you and the creditor agree on a lump sum amount that you need to pay to eliminate your debt.

In most cases, this amount is lower than the total debt. In this post, you will read about things you need to know before writing a debt settlement negotiation letter. Apart from that, we will also show you the debt settlement letter sample.

What to Consider Before Sending a Debt Settlement Letter?

The idea behind debt settlement letters is to propose a lump sum amount that is less than the original debt. Usually, this works, but it is important to say that it depends on the lender’s goodwill. However, it is an excellent way to get out of debt earlier and develop financial stability in the years and months to come.

The first thing you need to consider is the tone of the settlement letter to creditors. First, you have to make sure that you are polite. Keep in mind that this type of persuasive writing is meant to improve your financial situation. Thus, you have to be clear about why you are writing this letter, why you wish to settle your debt, and propose how you want to do it. The purpose of this letter is to make your life easier. With that in mind, it is important to do everything you can to make creditors’ life easy by explaining everything you need clearly and directly.

As we mentioned, writing a letter to a debt collector to settle the situation is beneficial for those in financial in economic difficulties. Of course, there are no guarantees that a lender will accept the offer. But if you are trying to get out of the bad financial situation without declaring bankruptcy, it is worth trying. If the lenders accept your offer, the chances are that 50 – 80 percent of your debt will be written off.

The biggest downside of sending this letter is that it is never guaranteed that you will succeed. You have to make a clear agreement with the lender. Otherwise, you might owe more than you did, to begin with. Hiring a debt settlement company can also be quite expensive because they are charging different fees. Apart from that, debt settlement can negatively affect your credit score.

How to Write a Letter of Debt Settlement to Your Creditors?

A debt settlement letter is a document that you are sending to your creditor explaining your financial situation. It also emphasizes the amount of money you are ready to pay to settle the debt. You can write it yourself or ask a debt settlement company to do it for you. But keep in mind that you will have to pay for their services. Remember that it is important that you don’t make your letter overly complicated. You want to present the information professionally but clearly. Another thing that you must not forget – if the lender accepts the offer, make sure that you have everything in writing. This is a general rule for everything that you do regarding finances.

Debt Settlement Letter Sample

Here is an example of a debt settlement proposal letter.

(First and Last Name)

(Address)

(Phone number)

(Account number)

(Date)

(Creditor name and address)

To whom it may concern,

I am writing to you in respect of the debt owed on the account number (XXXX). At present, I am not able to pay off this amount due to (here you explain your situation and the reasons why you are not able to pay off the debt, life circumstances, etc.).

However, I propose paying $X as a final settlement to settle the debt. In return, I am asking you to (here you put what you would like the lender to do, such as a document that the debt was paid in full, remove late payments from the credit score, etc.)

If you accept this offer, you will also agree that you are any of your associates will refrain from taking any further actions against me in an attempt to collect this debt. You will also agree that I will not have any liability in the future.

I can pay off the agreed amount by (put the date) once you accept my offer and send me a written and signed agreement on this.

Hope to hear from you

Yours faithfully

(Insert your name)

What to Expect After

First, it is essential to know that the answer will not come immediately. The creditors will probably take some time to think and discuss your offer. If you don’t get a response within several weeks, you can call them. In any case, you might expect one of the following:

• The creditor will accept your offer. In that case, it is good to send them your proposed payment once you get the confirmation.
• The creditors accept your proposal but with some adjustments. Creditors will try to negotiate the best option for them, so they might accept the offer in general but propose another amount.
• Finally, the creditor might also reject the offer. They also might ask you to pay the debt in full. In that case, you should consider taking payday loans or debt consolidations loans to get out of the debt. You can consult LoanSolution about this type of loan.