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How to Negotiate Debt Settlement on Your Own

Sarah Edwards | March 27, 2024

Sarah Edwards
Legal Expert
Sarah Edwards, BS

Sarah Edwards is a professional researcher and writer specializing in legal content. An Emerson College alumna, she holds a Bachelor of Science in Communication from the prestigious Boston institution.

Edited by Hannah Locklear

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: When your debts become overwhelming, you can reach out to your creditors and negotiate a debt settlement. Take a pause from making your regular payments to save up enough to offer a lump-sum payment. When you’ve saved around 75% of the debt value, reach out to your creditor with an offer. Start low so you have room to grow, and make sure to get everything in writing once you reach an agreement. Beware that debt settlement can affect your credit score, but it’s usually worth it in terms of getting back on track financially. SoloSettle can help you settle a debt for less.

Are you caught in a debt trap that you can’t seem to get out of? Maybe you are making regular payments on obligations, only to see most of your money go toward interest and not your loan's principal. You might struggle to make regular payments and find yourself with little disposable income to put toward savings or retirement.

If you’re struggling with unmanageable debt, you should consider debt settlement. Debt settlement involves paying a lump-sum payment to your creditors for less than the total value of the debt you owe. In exchange for the payment, your creditor agrees to wipe your slate clean and stops further collection activities against you.

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Debt settlement is available through various agencies that handle the process for you. However, most settlement agencies charge a significant fee for their services—as much as 25% of the total debt you owe.

By working with a debt settlement agency, you hand the reins over to others who will manage the debt settlement process for you. However, you will also spend more money than you would if you handled matters yourself.

Instead of handing your money to a debt settlement agency, consider negotiating with your creditors yourself. It will take some time and effort, but you will likely save money and get out of debt more quickly.

How to negotiate credit card debt settlement yourself

Hiring a debt settlement attorney can be expensive. Luckily, you don't need an attorney to be able to settle your debt.

We wanted to learn more about how to negotiate credit card debt settlement yourself, so we asked a debt lawyer to share some tips and tricks on how to settle with creditors and debt collectors. Here are some tips on debt settlement from an attorney:

  • Avoid threatening bankruptcy if you don't mean it, as this empty threat is often ineffective.
  • Paint a picture of your financial hardship to the creditors or their lawyers.
  • Show proof of your limited ability to pay, like being on Social Security, facing multiple debts, or having wage garnishments.
  • Make a realistic offer, considering they will likely counteroffer.
  • For junk debt buyers, settlements of 10-35% of the total debt are typical, while original creditors may accept 50-75%.
  • If you propose a payment plan, ensure it's realistic for your budget.
  • Be truthful about your financial situation, as creditors often have detailed information about you.

Watch this video for the full interview with a debt lawyer on debt settlement tips and tricks and to learn more about how to negotiate debt settlement on your own:

How does the debt settlement process work?

To start the debt settlement process, begin by listing the debts you want to settle and their current balances.

Most debt settlement agencies advise you to stop making all payments to creditors with whom you intend to negotiate a settlement. In the meantime, you’ll stash all of the money you’d usually pay to them in a savings account.

You can stop all payments at once or start with just a few creditors. If you have multiple debts, stopping just a few will keep you in good standing with your other lenders while you set to work on one or two creditors. You won’t need to worry about potential lawsuits from the creditors you continue to pay.

However, stopping payments to just one or two creditors can hinder your ability to save enough money for settlement. If you choose to stop just a few payments, see if you can find a way to increase your savings by diverting extra money or earning more.

Once you accumulate savings equal to at least 75% of the total value of your chosen account, you’re ready to start negotiating.

Start negotiating a debt settlement with your creditors

Once you have at least 75% of the value of the first debt you intend to settle, it’s time to send a settlement offer.

You can say something like this:

“I am offering you a lump-sum payment of $___ to settle my obligation with account number XXX. You can accept or counteroffer. If you accept, respond to this message with only ‘Accept.’ If you want to counteroffer, respond to this message with only ‘Counteroffer: [$___].’

Please do not contact me in any other way than by responding to this message. This offer expires in 6 days on MM/DD/YY. I will pay the agreed amount within 90 days of the settlement date.”

It’s best to offer at least 60% of the value of the total debt. For instance, if you owe $2,000 to the creditor, you might offer $1,200 to settle the debt.

You may go through several rounds of negotiation with the creditor, which is why it’s best to have at least 75% of the value of the first debt available in your account.

Once you have an agreement with your creditor, make sure to abide by its terms. Pay them the money on or before the due date—and get your deal in writing!

Let’s consider an example.

Example: Robert is being sued by his credit card company for a debt of $3,000. He uses SoloSuit to respond to the lawsuit with a written Answer in order to avoid losing automatically by a default judgment. Next, Robert uses SoloSettle to send a debt settlement offer of 50% the debt value, or $1,500. After a few rounds of the negotiations, SoloSettle helps Robert reach a settlement agreement of 70% of the debt, or $2,100. Robert pays off the debt over the next few months, and the creditor dismisses the lawsuit.


What should I do after settling my first debt?

Continue following the same process for each debt you want to settle. Remember, the faster you can save money, the more quickly you can break free from debt.

Look at debt settlement as something you want to take care of fast, like ripping off a bandaid. Most debt settlement programs last between two and five years. However, you can finish your program earlier if you don’t have to pay 25% of your debt to an agency.

Take an honest look at your household spending and determine where you can make cuts to save more money for paying off your debts. For instance, you could forgo dining out for a while or consider trading your new car for a used one.

If you can’t find a way to save more money, consider taking on a part-time job. Working a second job may seem exhausting. However, if you put in the effort, you’ll be able to eliminate your debt even more quickly.

Debt settlement will affect your credit score

Beware: debt settlement can hurt your credit score, especially if your debts are in collections. To mitigate the problem, you’ll want to work on building your credit back up once you finish the settlement process.

If you can, keep one or two credit cards open and repay them as usual. Don’t allow them to go into collections. You may not save money, but if you manage them appropriately, you’ll keep a solid credit history that you can use to increase your score.

Debt settlement isn’t for everyone, but it is a much better alternative than bankruptcy. Bankruptcy goes on your credit report and stays there for up to ten years, making it challenging to obtain a new loan or purchase a home.

In contrast, late payments and collections remain on your report for seven years. However, their importance will decline as the months go by following settlement, so you should see your score increase sooner than you would with bankruptcy.

Going forward, it’s best to carefully manage your finances to avoid getting sucked into another debt trap. Try to mitigate your use of debt as much as possible. Instead, build up your savings and rely on them for unexpected expenses that arise.

SoloSettle can help you settle your debt for less.

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