You should make a debt settlement offer after your account is delinquent. Creditors generally won’t negotiate on balances that are current, but when you are behind, they must consider that you won’t pay. So, a partial payment is better than no compensation at all.  

  • You can make a debt settlement offer on your own, and often it is better than using a third party. 
  • Offer letters should be professional to make your case for why you need to settle. 

While settlement may be appealing because of the prospect of lowering the principal, it is a hard process. Bankruptcy and debt management are easier and more reliable. 

Debt Settlement Offer on Your Own 

You can make an offer on your own. In fact, it is probably a better option than using a debt settlement company. These organizations charge up to 25% plus management fees, have limited success, and can take up to 36 months. On your own, you save the fees and may be able to settle the account in as little as six months.  

There are no guarantees that your creditor will negotiate, but most begin negotiating after you are at least 90 days behind. They get more anxious after five months of delinquency. This can be a long process, and you must commit to seeing it through because the damage to your credit grows as you must continue to miss payments while you negotiate.1  

Are you a Good Candidate to Make a Debt Settlement Offer? 

Before you try to negotiate on your own consider debt counseling and bankruptcy. Both are more reliable, and that means you have a better chance of success. Also, your credit will recover faster. 

Make sure your timing is right. You should be at least 90 days behind before they will consider negotiating. The best time is right before they write off the account and sell it to a collection agency. That usually happens after about five months of missed payments.  

You must have money to pay for the settlement. Most companies want a lump sum, while a few will accept a payment plan. Either way, you must have enough funds to pay once you reach an agreement. 

You must be able to negotiate effectively on your own behalf. You must be confident, persistent, and patient to see the process through. If you can’t, then you should consider another option. 

Prepare Your Debt Settlement Offer 

You need to negotiate two things, the principal and your credit. An opening offer should be 30% of the balance, and you want the creditor to report your account paid as agreed. This is an ideal situation. You must ensure that you have the funds to pay at least 30%. 

  • Assess your budget – how much are expenses and income? Put what is left in an account to pay off the settlement.  
  • Consider taxes – The IRS considers the difference between what you owe and settle for income 
  • Consider credit reporting – You don’t want your creditor to report settled or paid settled 

Once you know your budget and the process, it’s time to contact your creditor. 

Negotiate the Debt Settlement Offer 

When you contact your creditor concisely tell your hardship story. Be direct and honest about your situation. Tell them why you got behind and clearly state how much you can reasonably pay.  

  • Start negotiations at 30%. 
  • Know the amount you can reasonably pay. Don’t go over that number. 
  • If they won’t settle for 50% strongly consider another alternative. 

Some are willing to negotiate, but others are not. Understand what your limits are. If you can’t reach a reasonable agreement, you need to consider bankruptcy or debt management. 

Finalize the Settlement 

Finalize the deal by getting a written agreement.  No oral agreement is binding, only accept a written document.  

  • This document holds you and your creditor accountable to the settlement terms. 
  • Most agreements are for a lump sum or a 12-month payment plan. 
  • If you miss a payment, they will retract the offer. 

It is very important that you honor everything in the agreement, or else you lose everything you negotiated for. 

How to Write a Settlement Letter 

Your letter should be business formal. You need to explain your situation and tell them why you can’t pay the full amount you owe. Your letter needs to clearly state your terms and relevant contact information. This is a good template to follow from Pay Plan:2  

[Name of creditor] [Your name and address] 

[Creditor’s address]    


[Account number] 

Dear Sir/Madam, 

This letter regards the money you are claiming payment for, on the above account. 

I am unable to repay this amount in full due to [explain your current circumstances that prevent you from repaying in full to ensure the creditor understands your situation] 

I can instead offer the total amount of $[Amount you can pay] as a full and final settlement. 

If this is accepted, you agree that you or any associate company can take no further action against me to enforce or collect this debt and that I will be released from all liability. 

Please also confirm that you will also mark my credit reference agency file to show that you have accepted the above amount as the full and final settlement and that the account is closed and paid. 

I can pay the amount I have offered within [Length of time within which you can pay] once you have accepted my offer and I have received the written agreement of this. 

Please confirm where to make payment to. 

Yours faithfully, 

[Your full name] 

Final Thoughts on a Debt Settlement Offer 

A debt settlement offer may sound appealing because you can negotiate to pay less than you owe, but there are serious drawbacks to this strategy. It takes discipline with budgeting and negotiation. Since you are in a financial crisis, you must be honest with yourself about whether you can stay focused. It severely damages your credit because you miss payments throughout the process. Finally, it is as consistently successful as other alternatives. 

Bankruptcy and debt management are more reliable choices. They are structured with professionals that help you along the way. However, if you do choose to offer to settle with your creditors, make sure that you organize your finances and know exactly how much you can pay. Be reasonable about what you can afford and walk away if you can’t reach an agreement that you can commit to.  


  1. Nerd Wallet 
  2. Pay Plan