How To Write A Debt Settlement Proposal Letter?

If you are under the heavy burden of debt and want to get some respite from it, then you can write a Debt Settlement Proposal Letter for the same.

A Debt Settlement Proposal Letter can help you in getting rid of a huge portion of your debt.

In fact, according to the American Fair Credit Council, the average debt settlement amount is 48% of the total balance owed.

So clearly this letter could make or break your financial freedom, so to write the perfect Debt Settlement Proposal Letter read our article till the end.

How To Write A Debt Settlement Proposal Letter?

Key Takeaways

  • Your debt settlement proposal letter should start with the reason as to why you are unable to repay your debt.
  • You should also propose the amount that you can pay.
  • You can also add your expectations from your creditor.

What is Debt Settlement Proposal Letter?

What is Debt Settlement Proposal Letter

Debt affects everyone at this age, and it’s not easy to get rid of it once it comes to the level where you can’t pay it.

However, there are ways to settle those debts, and one of them is debt settlement.

Debt settlement is a negotiation that you make with the creditor, or a debt settlement company does it for you.

This option comes into light when the borrower can’t pay the entire debt and needs a way out with better terms.

The terms of the agreement entirely depend on the situation, how much you owe, and the terms that both sides are willing to take.

This article will show to write a good debt settlement proposal letter to start the negotiations between you and your creditor.

How To Write A Debt Settlement Proposal Letter?

How To Write A Debt Settlement Proposal Letter

Here’s a step-by-step guide as to how you write a debt settlement proposal letter:

1. Your financial situation

So your letter must start with the reason as to why you are unable to make payments towards your debts.

This could range from a massive life incident like a health issue or a job loss, or small things that led you not to be able to pay any outstanding debt.

You might also talk about other financial obligations you have to anyone or any company. You should also be able to prove that.

Read: What Is Debt Management?

Also Read: What Is Debt Consolidation?

2. The Offer For Debt Settlement

Then you move on to talking about the offer you would be willing to take and pay later on.

There are many things to consider, but you have to make sure that you propose a number you can actually pay.

You can reduce the total number you owe if you can pay the entire debt in full if there is a deduction [Also you can get help from debt settlement companies].

Or you can suggest paying it in monthly payments (or lower monthly payments if it is already a recurring payment).

3. Your Personal Information

Later, once you finish with the details of the settlement negotiation, you must include your contact so that the creditors can identify who you are and know your debt fully.

You can include your full name and account numbers to make things easier for both sides.

4. Your Expectations From The Other Side

You could also add what you expect from your creditor as part of you paying your debt with reductions or some fix to it for recurring payments.

If there is nothing, you should definitely request a written confirmation of your creditor’s acceptance of the proposal you made. 1

What Should You Consider Before Sending a Debt Settlement Letter?

What Should You Consider Before Sending a Debt Settlement Letter

By sending a debt settlement letter, you can do both harm and good to yourself.

The impact it can have depends on your current situation. So here are the pros and cons of sending a debt settlement letter.

Pros of Debt Settlement

You may be seeking a debt settlement because of dire financial hardship.

While bankruptcy is also one of the options that you can go for, debt settlement is comparatively a better choice.

Especially if you can get your creditors to report your debt as “paid” instead of “partially paid.”

So if your debt settlement request is accepted, then you can get to settle your debt 50-80% of your total balance.

Cons of Debt Settlement

Debt settlement does not offer a guarantee. Your creditor may or may not agree to settle your debt.

As such, you have to bear the risk of missing out on payments which will increase your debt even further.

If you hire a debt settlement agency, you will also owe them fees. Debt settlement will affect your credit score negatively.

Missed payments at the time of debt settlement will also appear on your credit report. 2

Debt Settlement Proposal Letter Sample

Here’s a sample debt settlement proposal letter for you:

[First & Last Name]
[Home or mailing address]
[Contact number]
[Current date]
[Account number that you’re looking to settle]
[Organization or Creditor’s Name]
[Address of the Creditor]

Salutation [Dear Sir/Madam],

I am writing in regard to the above-mentioned debt account and wish to propose settling my debt for a reduced amount. Due to my financial hardship (job loss, divorce, medical event, business failure, etc.) I am unable to pay my debt in full.

I wish to propose to settle my debt for ($ mention the amount you can pay) as a final settlement. I further request you to report the account as paid with the three major credit bureaus, Equifax, Experian, and TransUnion.

If you are willing to agree to this settlement, then please email me a signed letter of acceptance. Once I receive the letter of acceptance, I will repay the amount agreed upon within (mention the number of days you can make your payment in.) Please let me know your decision by (mention a date.)


[Your signature]


Three Keys To Debt Settlement

What To Do After Sending A Debt Settlement Letter?

After sending the debt settlement letter, you may get eager to know the decision of your creditor. As such, include a deadline so that you know you do not have to wait after that.

After sending the letter, make sure you have the agreed amount of money saved up.

After the acceptance of your debt settlement letter, make sure you check for the appropriate changes to appear in your credit report.

While writing the debt settlement letter, it is important to be thoughtful and careful. You do not want to write a whole essay.

Just mention a short yet effective reason as to why you are unable to pay your debt and keep the letter professional and to the point. 2

The Verdict

The bottom line is that debt settlement should not be a hard and lengthy process.

All you need to do is to find common ground with your creditor and make sure that you can make those payments after making the debt settlement.

It might not be as you would like, but you will most definitely lower the amount you owe and at least make payments in a systematic way without missing any payments.

This helps both sides as the headaches of payments will be gone after the settlement.

Read: How Financial Advisors Can Help With Your Debt?


What is the lowest amount a creditor will agree to settle for?

Generally crediors are willing accept 80% of the amount, but they can even agree to settle for as low as 40-50% depending on your financial situation, history, etc.

Should I pay my debt in full or go for a settlement?

Paying your debt in full is always a better option instead of going for a settlement.

As settlement decreases, your credit score and your settlement record can remain on your credit report for up to seven years. 4

How long can it take for my credit score to improve after a debt settlement?

It can take 6-24 months or even more to improve your credit score after a debt settlement. This depends on your financial situation and history.

On any day or under any circumstance, debt settlement is better than not paying your debt at all. 5

NPC Overall Rating


The National Planning Cycles is committed to producing high-quality content that follows industry standards. We do this by using primary sources, such as white papers and government data alongside original reporting from reputable publishers that were appropriate for the accuracy of information while still being unbiased. We have an editorial policy that includes verifiable facts with due credit given where applicable.


Leave a Comment