How to Make a Debt Settlement Agreement

Co-Founder of SoloSuit
George Simons, JD/MBA

George Simons is the co-founder and CEO of SoloSuit. He has helped Americans protect over $1 billion from predatory debt lawsuits. George graduated from BYU Law school in 2020 with a JD-MBA. In his spare time, George likes to cook, because he likes to eat.

Edited by Hannah Locklear

Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: To make a settlement agreement, follow these steps: Identify who owns your debt, possibly via bills or the Annual Credit Report website, negotiate a settlement, starting low, and formalize the agreement in writing, including all key details.

Are you behind on your credit card payments? Can't pay your medical bills? Bought a car you can no longer afford?

If so, don't worry about going to jail or getting your car taken away right now. You may not even need to sell your plasma or list your Ty beanie baby collection on eBay, because a debt settlement agreement could be a better alternative.

About one in 13 consumers with a credit record has made a debt settlement agreement on one or more of their accounts, and the number of debt settlements has been on the rise since 2016. Clearly, there's a reason so many people are hopping on the settlement train.

What is a debt settlement agreement, and how do you get one?

What is a debt settlement agreement?

A debt settlement agreement is like a super awesome secret handshake between you and your creditor. (Okay, maybe it's not quite that chummy, but it is a chance to cut a good deal with the people asking you to cough up the cash.)

Your creditor agrees to compromise the debt (meaning: you pay less!), and you agree to pay this new amount upfront or in the form of a payment plan. You could also pay the debt in full, but we assume you probably wouldn't be in this situation if that were a viable option.

You can use SoloSettle to send and receive debt settlement offers until you reach an agreement with the debt collector.

Settle with SoloSettle

Make an Offer

What is a lump-sum payment?

Most creditors agree to let you pay less debt than you owe, as long as you pay it all at once. After you make this lump-sum payment, the debt is forgiven. Time to party! (But don't go getting yourself into debt again, of course.)

What is a payment plan?

Sometimes a creditor will allow you to make a payment plan for your remaining debt. You'll end up paying more than you would if you paid it all upfront, but the total will still be less than the amount you owe.

Though a bit more costly than a lump-sum payment, this could be an ideal path to take if you need a more manageable way to pay off your debt. But remember, not all creditors want to run the risk of you defaulting on your payments, so this might not be possible.

Respond to debt collectors with SoloSuit and win in court.

When to get a debt settlement agreement

There are some clear benefits to opting for a debt settlement agreement, especially in comparison to continuing to ignore the debt or paying the debt in full.

If you have debts that are more than 90 days delinquent, have enough money to settle, and you're a decent negotiator, it could be a great route to take.

Here are some other pros and cons to consider before you go for it.

Benefits of a debt settlement agreement

In most debt agreements, the debtor ends up paying a fraction of the outstanding debt. Sweet deal, right?

Plus, you get to wipe out the debt sooner than if you were to make regular payments for the full amount.

In short, not only are you getting rid of your debt at a faster rate — but you're also paying less than you originally owed, and your creditor is cool with it. Cheers to that.

Drawbacks of a debt settlement agreement

After the debt is paid off, the creditor reports the settlement to the credit bureaus, which probably won't have much of an impact on a bad credit score — but keep in mind that a good credit score could take a temporary hit. (Still, this option is often better than ignoring the debt completely.)

In some cases, you may also have to pay taxes on the debt that is canceled out in your settlement. So, take time to consider the pros and cons of debt settlement before you decide if it's right for you.

Make the right defense the right way with SoloSuit.

3 steps to making a debt settlement agreement

By opting for a settlement agreement, you'll be kissing your debt goodbye soon. Don't stress — this will all be behind you before you know it. Here's what to do when making a debt settlement agreement.

1. Figure out who owns your debt

You may owe a bunch of money, but it's not a retailer or even a credit card company knocking on your door asking you to pay up. Instead, your debt has been passed over to a collection agency — and sometimes it can be tricky figuring out exactly which agency you're dealing with.

Start the process of settling your debt by identifying who owns your collection account. This might be on the pile of bills you've received in the mail, or you can look it up on the Annual Credit Report website.

2. Negotiate with a collection agent

Now is the time to brush up on your negotiation skills, because the collection agent isn't going to let this one slide easily. SoloSettle makes the negotiation process easy, using a tech-based approach that allows you to send and receive settlement offers almost instantaneously.

Most collection agencies buy debt for 4-8 cents on the dollar, then hope to collect roughly 11 cents in return. Knowing that these folks aim to double their money will give you a good starting point. Call the collection agency and explain why you're not able to pay off your full debt, then make an offer to settle.

Begin with a low proposal (4-5 cents), then make a counter-offer from there as needed. Play it cool — the waterworks probably aren't going to do you any good here.

If you end up making a deal that works for your budget, great! But don't be afraid to walk away if you can't come to an agreement that suits your financial situation.

3. Formalize the agreement

Take a deep breath. You did it! But all that skillful negotiating could go to waste if you don't get it written down. Ask the collection agent to send you the official debt settlement agreement via mail, email, or fax, making sure it includes:

Name of the original creditor and collection agency
Date of agreement
Your name and account number
Settlement amount
Payment plan details (dates and additional terms of agreement)

Check out this video of SoloSuit's CEO breaking down the part of settling a debt:

Deciding if a debt settlement agreement is right for you

Debt settlement agreements are increasingly common among today's consumers. But is it the right choice for you?

If you have the money to settle, are ready to negotiate, and want to pay off your debt more quickly, it's certainly a good option to consider.

In short, here are the best tips and tricks for reaching a debt settlement:

Debt Settlement Tips and Tricks

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance

What If I Haven't Been Sued Yet?

If you've only received a collections notice, but not a lawsuit, the best way to respond is with a Debt Validation Letter. When a debt collector contacts you in any way, whether it's by phone or mail, you can respond with a Debt Validation Letter. This letter notifies the collector that you dispute the debt and requires they provide proof you owe the debt. They can't call you or continue collecting until they provide validation of the debt.

Get started with a Debt Validation Letter here.

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Debt collector guides

Are you being contacted by a debt collector? We’re making guides on how to resolve debt with each one.

Arbitration

If the thought of going to court stresses you out, you’re not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Bankruptcy

Bankruptcy is a great way to legally resolve debt, but it's usually best to consider it as a last resort. Here are some bankruptcy guides to help you decide which debt resolution option is best for you.

Check your case status

Don’t have time to go to your local courthouse to check the status of your case? We’ve created state guides on how to check the status of your case throughout the US, complete with online search tools and court directories.

Credit

Debt has a big impact on your credit. Below is a list of guides on how to repair and improve your credit, even while managing major debt, along with other credit-related resources.

Debt collection FAQs

Find answers to some of our the most commonly-asked questions about debt collection below.

Debt collection documents and templates

If you're dealing with debt, these documents and templates will help you respond, protect your rights, negotiate, and resolve your debts.

Debt relief

We’ve created a specialized guide on how to find debt relief in all 50 states, complete with steps to take to find relief, state-specific resources, and more.

Debt settlement

Debt settlement is one of the most effective ways to resolve a debt and save money. We’ve created state guides on debt settlement. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

Eviction

Facing an eviction? The following guides will help you navigate your situation with confidence.

Federal debt collection laws

Knowing your rights makes it easier to stand up for your rights. Below, we’ve compiled all our articles on federal debt collection laws that protect you from unfair practices.

Legal aid

Helping people find access to justice is at the heart of Solo's misison. If you're dealing with a legal debt issue, the following guides will help you through it.

Medical debt

Having a health challenge is stressful, but dealing with medical debt on top of it is overwhelming. Here are some resources on how to manage medical debt.

Personal finance

Learn how to manage your finances and overcome crushing debt. Check out our personal finance guides below.

State debt collection laws

Debt collection laws vary by state, so we have compiled a guide to each state’s debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Statute of limitations on debt

Like all debt collection laws, the statute of limitations on debt varies by state. So, we wrote guides on each state’s statutes and more.

Stop collection calls

Do you keep getting calls from an unknown number, only to realize that it’s a debt collector on the other line? If you’ve been called by any of the following numbers, chances are you have collectors coming after you, and we’ll tell you how to stop them.

Wage garnishment

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in your state, plus other wage garnishment resources.

The Debt Hotline

Hosted by Team Solo, The Debt Hotline breaks down debt and personal finance topics with help from attorneys, financial experts, and industry pros. We respond to real questions to help you navigate debt with knowledge and courage.