Debt settlement can be a stressful process. It can be overwhelming to figure out where to start. If you’re thinking about offering to settle a debt, sending a letter is a smart first step. It helps put your offer in writing and keeps a record of what you said.
Verifying Debt
Before getting started on a settlement offer, you should request that the collector verify your debt. If you send a written request within 30 days of first contact, they must stop collection efforts until they confirm the debt. If they don’t respond, they may not legally collect it—but the debt doesn’t automatically go away.
Can I Write My Own Settlement Letter and Settlement Agreement?
Many people think you need to hire a lawyer to write a settlement letter or agreement. Thankfully that’s untrue, you’re allowed to write your own. However, it’s important to know the difference between an offer letter and agreement.
- Settlement letters are written requests that you send to creditors. They are less formal and are not legally binding. That makes it easier to write one on your own.
- Settlement agreements are technically contracts between you and a creditor. They are legally binding documents and should be taken very seriously. It is a good idea to work with an expert to write, or review, the agreement so you don’t have issues in the future.
While you can navigate the whole process alone, it is recommended that you work with a lawyer. If you don’t think you can afford one, you may qualify for free legal services. Another option is to work with a debt relief program, like SmartSpending, which can help you through the ins and outs of debt settlement.
Does a Settlement Agreement Need to be Notarized?
In most cases you do not need to get the settlement agreement notarized. In the following cases it can be useful to have the agreement notarized:
- You are settling a large amount of debt; or
- You need to submit the agreement to a court or third-part agency; or
- You are concerned about potential disputes or lawsuits.
Getting the agreement notarized proves that both sides signed freely.
How to Write a Settlement Letter and What Happens Next
Writing an offer letter is relatively simple. There isn’t a universal list of required information, but you should include all the following:
- Your contact details: Include your full name, mailing address, and phone number. You can also include your email address if you want.
- Creditor’s contact details: Include the name and address of the company currently handling your debt. You may also want to include the name of the original creditor if it’s different.
- Debt details: Include the account number and total debt.
- Offer details: Include how you want to settle. Be precise by including how much you want to pay, if you’ll pay in a lump sum or in installments, due dates, etc.
- An explanation of why you need a settlement: Creditors may be more likely to accept an offer if they know why you need to settle a debt. Don’t write a sob story; keep it concise and focused. Something like “I lost my only source of income and have been unable to find new employment for months” or “my medical expenses have risen due to an emergency” should be enough.
- A request for a written agreement: It is really important that you get a written agreement that specifically spells out everything about your settlement. This might be a letter from the creditor or a document in a different format. Make sure both parties sign it.
After you send the letter, the creditor may contact you to negotiate or respond. But they don’t have to reply, and they may continue collection efforts in the meantime.
If the creditor agrees, it’s a good idea to ask for a written agreement—even if you have agreed over the phone. Without a written agreement, it’s easier for the creditor to back out and demand the full amount.
Template Debt Settlement Letter
Note: This is only an example. It is not legal advice. Your situation may be different, and it’s a good idea to speak with a lawyer if you’re unsure how to move forward.
[Date]
[Your name]
[Your address]
[City, state, zip code]
[Your phone number]
[Optionally: your email address]
[Name of the collector if you know it]
[Creditor/company name]
[Creditor/company address]
[City, state, zip code]
Re: [account number for the debt amount]
Dear [name of the collector or Sir/Madam],
I am writing to you regarding the outstanding debt associated with the account number identified above. I am unable to pay the outstanding balance in full due to unforeseen financial difficulties. [Explain your financial hardship.]
I would like to offer $[amount of your opening offer] as a full settlement amount. In return I request that you, and any associated companies, agree to close the account, release me from all obligations regarding it, and permanently cease all attempts to collect or enforce any debt related to it.
If this proposal is acceptable, I ask that you send me a written and signed agreement to that effect. When I receive your agreement, I will pay the settlement amount within [a reasonable number of days in which you can pay, for example 30] days. Please notify me of your decision by [deadline for your creditor to respond].
Sincerely,
[your signature]
[your name]
Final Thoughts
Writing a debt settlement letter can feel intimidating, but putting your offer in writing gives you more control. It helps you stay organized and protects you if there’s a disagreement later. Just make sure your letter is clear, honest, and includes all the key details.
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