What is a Settlement Letter for Debt?

What is a settlement letter?

If you’ve been struggling with debt for a while, you may have heard about debt settlement. But did you know that the settlement process often starts with writing a letter? In light of that, we’ve created a guide to writing a settlement letter for debt settlement. So, read on to learn what a debt settlement letter is, the impact that this letter can have on your financial health, and how to write one of your very own.

What is a settlement letter for debt?

Before we can get into specifics about writing a debt settlement letter, it’s vital to understand the concept of debt settlement itself. At its core, debt settlement involves negotiating  with your creditors and asking them to forgive a portion of your debt in exchange for a lump-sum payment. Typically, this method is used by borrowers who have some cash on their hands, but cannot pay off their balances in full.

There are two ways to go about settling debt. On the one hand, you can try to settle up with your creditors by yourself. On the other, you can hire a debt settlement firm to tackle the task for you. While the latter route may seem easier, it does come with fees, which can be expensive. With that in mind, if you choose to contact your creditors on your own, you’re going to be expected to write them a debt settlement letter.

Put simply, a settlement note is a formal letter that asks your creditors if they would be willing to accept a debt settlement on your account. It specifies the amount of money that you can offer them as a settlement and explains why you cannot pay your debt in full.

Pros and cons of writing a debt settlement letter

While writing a settlement negotiation letter may seem like the obvious choice over paying the full amount you owe, like any other financial decision, this has its advantages and disadvantages. We’ve laid them out for your consideration below. Read them carefully to get a better idea of whether or not you want to go this route.

Pros of writing a settlement note

The most significant undeniable benefit of settling your debts is that it has the potential to save you money. A 2018 study by the American Fair Credit Council (AFCC) found that borrowers who settle their debts typically save around $2.64 for every $1 charged in fees.

If you face financial hardship and can truly not afford to pay off your debts, settling can make becoming debt-free more manageable. This is especially true if you decide to skip the debt settlement firm and write a negotiation letter on your own.

Cons of writing a settlement note

Many borrowers are unaware that settling debt can hurt your credit score. According to Experian, one of the three major credit bureaus, settled accounts remain on your credit report for seven years, so it’s important to think through the potential consequences before you offer a settlement to your creditors.

Additionally, a debt settlement letter is merely an offer. There is not a guarantee that your creditors will accept. Although a negotiation will likely follow, it is crucial that you keep making your payments toward your debts until an agreement is reached. Otherwise, missed payments may also impact your credit, and you may incur additional fees.

How to write a settlement negotiation letter

If you’ve weighed the pros and cons of settling your debt and decided that you do want to write a debt settlement offer letter, the next step is to learn how to put one together. To that end, we’ve listed the components of an effective settlement letter below. Use these points as a template when you’re ready to write your letter.

Address it properly

The first step to writing a settlement letter is to include all the correct information. You’ll want to start by being sure to include your full name, current address, and telephone number. Then, you’ll need to specify the date the letter was written and the account number you are referencing. Finally, include the creditor’s name and contact information.

Explain why you’re unable to pay in full

Once you’ve addressed the letter, begin it by getting straight to the point. Say that you are writing in reference to the account number above, and you are hoping to reach a settlement with them.

Explain that you are currently unable to pay your debt in full and offer a few specific details about what is causing your financial hardship. However, do your best to keep your reasoning concise and not get too bogged down in the details.

Be clear about how much you’re willing to pay and what you expect

Then, transition into how much you’re able to offer them in the form of a settlement and state what you would like from them in return for the lump sum payment. Typically, people ask for the account to be paid in full and closed, but you may also want to ask to remove any late fees on the account.

Ask for a signed agreement

Close the letter by asking the creditor to send you a signed agreement if they accept the terms of your proposal. You may also ask them to let you know their decision by a particular deadline. Once that’s done, thank them for their consideration and sign off on the letter.

The bottom line on writing a debt settlement offer letter

When you’re genuinely struggling financially, writing a debt settlement letter can be one of the first steps toward finally becoming debt-free. That said, since settling your debt can have lasting implications on your overall financial health, it’s important to think this decision through before you put pen to paper.

If you do decide to write a letter, use this guide to help you get started. However, if you don’t want the responsibility of writing your own letter, know that it’s perfectly acceptable to ask for help. At Tayne Law Group, we can take care of the hard work of negotiating with your creditors for you. Reach out today to get started at (866) 890-7337, or fill out our short contact form and we’ll get in touch!

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