How to Write a Debt Settlement Letter
If you’re finding it difficult to repay your debts or meet agreements with creditors, a debt settlement letter is one of the best ways to negotiate new terms. This can be used for all sorts of debts, including credit card and loan repayments.
If you repeatedly miss repayments you risk a negative credit score – not to mention the impact on your stress level.
Writing a debt settlement or agreement letter is a professional and straightforward way to address these issues.
Essential information to include
In general, when you write a debt settlement letter, you should include information to show the creditor you have carefully considered your options, as well as taken their interests into account.
Your debt settlement letter should include:
- Your account information.
- Why you want a new arrangement.
- What you propose as your new agreement to pay the debt.
- A request for credit agencies to be told you’ve paid in full.
- A request for written evidence of your new agreement.
We know that dealing with debt can be overwhelming. Contact us today for expert advice and read on to learn what steps you can take.
Account information
Always include your account details, account number and the total amount you owe the creditor.
It's also helpful to list any other points of contact you’ve had with them, such as phone conversations, the dates they took place and any reference numbers.
Outline your reasons
Next, you need to explain your financial circumstances. Usually, this will include telling the creditor that, if new agreements can’t be arranged you will probably have to file for bankruptcy.
This shows the severity of your financial situation to the creditor and the urgent need for new terms.
Your letter needs to convince the lender that a new agreement is the right step for them, as much as it is for you. The best way to address the situation is by highlighting how new terms will be beneficial to the lender financially.
Make it clear that they are much more likely to receive the repayments on these new terms, so it should be the most appealing option.
Propose a new plan
It’s time to get down to the details and propose a new payment plan. Consider your wider finances and assess what you can afford to pay towards this particular debt.
It helps to be very specific here. Explain the amount you’ll repay, how regularly you can make repayments and the period of time it will take to repay the full amount.
The lenders are unlikely to agree with the first set of terms you set out, so make sure you leave yourself room for negotiation. They’ll most likely send you alternative agreements, which you can either agree to, or respond a counter proposal.
Essential legal protection
It is crucial you request certain legal terms in the letter. This includes asking that your account be reported to credit agencies as paid in full, with all collection demands cancelled and negative marks against your credit score removed.
You should also request a Letter of Agreement once new terms have been negotiated. This is solid evidence of the new agreement, which can be used should any further disputes arise.
Additional tips and advice
- Use a professional tone
It can be tempting to become personal or emotional in tone in these letters – after all, it has a huge impact on your life.
However, keeping your tone neutral and avoiding demanding language will help things run much smoother, and make the negotiations more likely to end up on your terms. - Stick to the point
Keep the letter concise. You may feel like there’s a lot of information to include, but sticking to the point and avoiding adding personal details is the best way to keep it professional. - Keep all documentation
Keep a copy of all the documents, including copies of your own letters as well as the ones sent by your lender, as they may be useful. It will allow you to go back and check details, and it’s evidence of the communication.
Understand your legal rights
It’s essential you understand your rights when it comes to debt settlements, as these letters are considered to be legal documents. You should also think about what you will do if your lender doesn’t agree to meet your new terms, as they are legally entitled to do.
Contacting a professional contract and civil law professional, such as those on the First4Lawyers panel, can help give you best chances of success.
Do you need a little extra help?
If you’re feeling overwhelmed about how to write a debt settlement letter, or if you want to speak to an expert, get in touch to discuss your case directly with a legal specialist.
More about our debt settlement legal services
Note: First4Lawyers offers this information as guidance, not advice. Before taking any action, you should seek professional assistance tailored to your personal circumstances.
