How to Negotiate Debt Settlement on Your Own?

If you own a lot of money in debt to one or multiple people, paying less than you own might feel great.

Debt Settlement is a great option that you can go for in order to lessen the burden of unsurmountable amounts of debt.

In fact, according to the American Fair Credit Council, the average settlement amount is 48% of the balance owed. So you can imagine the kind of help you will get from this option.

But now the main question is if you should settle your debt via a third-party or whether you should do this yourself?

Working with a company for your debt settlement could extend the debt settlement process and might be costly. Furthermore, you still need to save up some amount of money to pay the company and the creditor’s fees.

Rather using a do-it-yourself approach to your debt settlement might have the same success and save you time and money. So let us see how to negotiate debt settlement on your own.

How to Negotiate Debt Settlement on Your Own?

Key Takeaways

  • Although debt settlement can save you some money, but it could also damage your credit score and accrue extra fees.
  • It is important to let your creditors know why you are unable to make payments and want to settle your debt.
  • Debt settlement will take less time if you decide to work with a debt settlement agency.

How to Negotiate Debt Settlement on Your Own?

How to Negotiate Debt Settlement on Your Own

Here’s how you can negotiate debt settlement on your own:

1. Assess Your Situation

Just like with everything, you first need to start everything from scratch and look at what kind of a situation you are in.

Make a list of all the debts you have with the creditors’ names and the amount you owe, and track how late you are with your payments.

This will give you a picture as to pay who and when first.

It is important to note that if you think you can keep making minimum payments or you are not late with your debts, this might be a useful way to go forward with your debts because even though debt settlement can save you some money, it could also damage your credit score and accrue extra fees1.

2. Research Creditors

Not every creditor is the same; they might have policies in shape different from one another regarding the debt settlement process and what they accept and what they don’t.

You might need to wait some time before your creditor thinks about settling, or some other creditor might not be in favor of settling at all.

There is also a chance that the creditor might sue you to collect their debts; that is why it is most probably a better idea to try to solve your debts with them first.

You can find all of this information about the creditors online or by directly talking to them.

3. Make an Offer to Creditors

Once you believe everything is ready and you know everything about them, and you have the money to settle your debt account with the creditor, it is now time to call them up and make an offer for debt settlement.

The creditor might also automatically send you a settlement offer in some cases, which is better if the offer is like you want it.

It is also extremely helpful to let them know why you can’t make your payment and want to settle; this might make things easier.

ReadDifference Between Debt Settlement And Debt Consolidation

4. Agree on a Settlement Amount and Pay It

Once the agreement is ready, make the settlement, review the offer again, and make the payment that you already agreed with the creditor. 2

DIY Debt Settlement Vs. Debt Settlement Companies

DIY Debt Settlement Vs. Debt Settlement Companies

The major distinction between settling your debt yourself and hiring a debt settlement company is time and money.

Debt settlement companies ideally claim to settle your debt for 50% less than what you owe within 36 months on average.

However, with a DIY debt settlement approach, you might be able to get the debt settlement done for as low as six months.

Also, you would have to pay somewhere between 20-25% of enrolled debt as fees to the debt settlement company.

You might also have to pay an average of $9 to manage your account in addition to set-up fees.

Besides, these debt settlement companies have a very inconsistent success rate.

While there is no guarantee no matter which path you choose, at least a DIY settlement will cost you less money and time. 3

Why Do Creditors Agree For a Debt Settlement?

Why Do Creditors Agree For a Debt Settlement

In the case of secured loans or mortgage loans, the creditor has the option to seize the assets or mortgage in case of non-repayment of the loan.

But in the case of unsecured loans such as credit card loans, personal loans, etc., the creditor does not have the option to seize any asset in case of non-repayment.

The best that they can do is either they can sell your debt to a third party for collection, or they can send your accounts to the collection, or they can sue you.

Choosing either of the paths requires them to pay fees or commissions to the collection agency. Even hiring an attorney to sue will cost them a lot. As such, they agree to a settlement.

In fact, if you offer to pay your creditor more than what they can make after hiring a collector, then they will most definitely agree to a debt settlement.

What To Do When Creditors Don’t Agree For a Settlement?

If your creditor declines to do a debt settlement then do not panic!

You can choose to hire a debt settlement company, their expertise may be helpful in convincing your creditor for a debt settlement.

Although DIY debt settlement is what we root for, hiring a debt settlement company can be your last resort to convince your creditors for a debt settlement even if the previous negotiation didn’t work out.

Risks of Debt Settlement

Risks of Debt Settlement

Debt settlement can save you a lot of money, but it might not be a success always. Here are some risks associated with debt settlement that you may have to bear:

  • You can be sued: A creditor may decide to sue when you do not pay their money, and court judgment against you can lead to wage garnishment and other penalties.
  • Your credit score will be ruined: Even if you take a DIY route to debt settlement, you will bear a good risk of damaging your credit score along the way.
  • Your account may not be delinquent enough: To settle your debt, your account needs to be delinquent for at least 90 days. Creditors do not agree to settle your debt if you are behind your payments only for a few days.
  • Settlement may take time: The settlement process might take time, or your creditor might take time to agree on a settlement. The more time settlement takes, the more hit your credit score will take. And if in case your creditor does not agree, your accounts might be sent to collections. 4

Alternatives of Debt Settlement

Alternatives of Debt Settlement

If debt settlement does not work out for you, then here are some alternatives to debt settlement that you can go for:

Balance Transfer

If you cannot pay your credit card debt, you can consolidate all your debts and transfer the balance to a new credit card with zero APR.

The promotional period usually lasts up to 12 months on these credit cards, which gives you an opportunity to save money on interest.

If you are able to pay off your credit card debt before the promotional period ends, then you will save a lot of money. But if you don’t, you will have to bear a high-interest rate again.

Debt Management Plan

Unlike debt settlement, a DMP aims at paying off your debt once and for all.

The monthly payment in a DMP might not be as low, but it is good for your credit score. To get started, you will have to talk to a credit counselor first and hire an agency.


Although bankruptcy should always be the last resort, if you think your debt is practically impossible to pay, then you should choose to declare bankruptcy.

Bankruptcy has severe repercussions, such as it remains on your credit report for 7-10 years, and obviously ruins your credit score. 5

The Verdict

As you can see, negotiating your own debt settlement is actually not easy and might take a shorter amount of time when you work with a debt settlement agency.

You need to do your own detailed research and understand your creditors’ needs and wants.


What to do after a debt settlement?

You have successfully settled your debt. So what should you do now?

  • Settled or forgiven debt is considered taxable income, so you should take care of that.
  • Also, after the settlement, you should take a look at your credit report and see everything is stated in it accurately as per your debt settlement conditions. 6

What percentage should I offer for a debt settlement?

You can offer to pay your creditor 25% of what you owe in a lump sum in exchange for debt forgiveness and then expect them to send a counter for a higher percentage. 7

Can I remove debt settlement from my credit report?

Unfortunately, debt settlement remains on your credit report for seven years, and you cannot get it removed before seven years.

Will debt settlement hurt my credit?

Yes, debt settlement will damage your credit score and will make it more difficult for you to get financing in the future.

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