A Guide To Debt Settlement Negotiations

Debt settlement requires negotiating with your creditors with a view of significantly reducing what you owe to your creditors. For that, it is best to know the top debt settlement programs for ease of discussion and plan of action.

While some people prefer dealing with debt settlement companies, they aren’t the only way to settle your debts.

Since you understand your debt better, you can forego the company/negotiator and handle the negotiations with your creditors yourself by following a guide to debt settlement negotiations like the one shared below. A DIY debt settlement could be as effective as any other type of debt resettlement and allows you to put more cash towards repaying your debt rather than fee payments.

How Can You Negotiate A Do-It-Yourself Debt Settlement?

Negotiating with the creditors yourself isn’t a painless or quick process. DIY debt settlement negotiations take determination, effort, and a certain amount of courage to call your creditors and request to settle your debt for less than the principal amount. The lender is likely to settle the debt if it is 90 days past its due time but hasn’t entered debt collection yet. This is more likely in unsecured debts like unpaid medical bills and credit card debts, unlike student loans, back taxes, or mortgage debt.

It could also pay to consider the alternatives. To most people, other credit card debt relief options like debt consolidation loans and credit counseling are a less risky path to debt repayment. However, others might consider bankruptcy the most painless and quickest solution. Are you sure that negotiating your debt is your right choice? Then, below is how to make it work.

Determine Your Budget

Exactly how much can you afford to offer the creditors? This should be the first question to ask yourself before approaching your lender. Most of them require you to pay a large lump-sum amount for them to consider canceling your debt, while others might accept a monthly payment but may ask for more cash in total.


Thoroughly inspect your household budget; looking for any items or areas you could forgo to squeeze additional cash for one-time or monthly payments. Additionally, consider earning extra income like a side gig, selling stuff online, or working extra hours. It will help you boost your payments. If you face any issue in the budgeting process, you could seek help from a credit counselor.

After you determine the amount you can comfortably pay, either as a monthly sum or an upfront pay that forms the maximum budget that you can discuss with the creditors. Do not agree to any deal requiring you to pay more than your budget dictates. This is because you run the risk of falling behind again if you fail, bringing you back to the same predicament.

Ensure You’ve Got A Clear Narrative

Having a straightforward narrative is helpful in any negotiation. The first thing you have to give your creditors during the negotiations is a concise, clear explanation of why you have trouble with your bill repayments. You don’t need to be too elaborate or offer lots of details at this stage.

Offer the creditors a sentence or two detailing the issues you’ve had and in what ways you are trying to deal with them. For instance, you could say, “I got laid off from my job in a company-wide retrenchment because of COVID-19, which cut off my family income by half. I am looking for a side gig but cannot meet the debt payments in my current financial state.”

However, ensure you stick to the facts and don’t be tempted to exaggerate. When you start exaggerating the facts, it becomes harder to keep your story right, and giving separate accounts every time you call might make your creditor suspicious. This will make them less willing to cut you a deal.

Bring Up Bankruptcy

The fear of losing their entire investment is the primary reason they’d want to negotiate with a debtor. And if they choose to sell your debt, the debt buyer will pay very little, and they might get nothing when you are declared bankrupt.

Therefore, bringing forth the bankruptcy issue early in the conversation makes sense. Even when you aren’t considering it an option, suggesting bankruptcy might incentivize the creditors to consider striking a deal. This mainly works better with holders of unsecured debts, who might most likely get nothing if you get declared bankrupt.

Make a Lowball Settlement Offer

Begin your debt settlement negotiations by making a low offer. For example, you might ask the lenders to settle your debt for 20% of what you presently owe. You shouldn’t expect your lender to accept the offer, but they will likely make a higher counteroffer.

From there, you could negotiate towards a middle ground. You have a better chance of ending up with less than the amount you originally owe by starting low. During these negotiations, keep the budget in mind. For instance, if you know you can only afford 50% of your total amount, start the amount negotiation low enough to arrive at a settlement that isn’t higher than the budget. Remember, settling the debt at an amount you can afford is better than settling it.

Stay Calm

It can be frustrating when you are under lots of financial stress if the individual on the other end of the call doesn’t sympathize with your predicaments. However, it doesn’t help your case by venting your anger on your debt collector or creditor. They can most likely label you as a troubled client and hang up.

Do your best to remain calm to keep the other party talking. Whenever you feel like you’re growing upset, excuse yourself and inform them you need to call them back. Ask to record the conversation if the customer service representative is particularly harsh or rude with you. There’s a good chance they’ll become more polite from that point.

Similarly, do not panic if the debt collector begins to threaten you with loss of property or lawsuits. Instead, ask for more information calmly. For instance, you could ask them when you’ll get the official notice of the lawsuit or when they plan on taking the money from your bank account. Ensure you carefully note how the creditor or the collector answers your questions. There are established legal limits to what debt can do or tell you, and there could be a chance that their threats are way above the legal line.

A debt collector cannot legally threaten to put you in jail. Unless they fully plan to see their threats through, they cannot even legally threaten to sue you. If you catch them on the wrong side of the law, you can sue them and most likely be reimbursed for the damages, turning the tables to your advantage.

Be Patient

You will most likely not be able to settle the debts on your first call to your creditor. The person you call for the first time might not have the authority to deal with debtors or aren’t just willing to. Rather than give up, call again to see whether you can get in contact with a cooperative rep. If you aren’t getting anywhere with the customer service reps, request to speak with the manager.

Even after getting through to someone willing to negotiate, it might take several rounds to arrive at a deal. All through, ensure that you document your conversations with the collectors and creditors and include the name of the representative you speak with, the subject matter, date, and time the conversation took place.

The notes accord you a record of the amount of the last offer when you call next. This way, the debtor will not attempt to backtrack to the previous offer.

Ensure you keep the notes on a file together with any letters you might receive from the debt collector or creditor. Keep your eyes on the goal when negotiating. The aim of settling all your debts is possible. You want the creditor to list them “paid as agreed or Paid in Full” on your credit report instead of “Paid Settled” or “Settled,” which harms your credit score.

If you cannot get the debtors to agree, you should settle enough debt to lower the remaining balance to a manageable level. Otherwise, you will not be any better off than you currently are.

Note It In Writing

Upon reaching a debt settlement with your creditor, ensure you put down the agreement’s details in writing have the creditor or collector sign or stamp the document. This protects you if issues arise later, like the creditor backtracking on your agreement.

Pay the money

After getting the agreement down in writing, ensure you stick to that agreement. It means making payments on time and paying the exact amount you have committed to pay.

Negotiating your debt settlement personally will use up a fair amount of your energy and time. Reaching an agreement with your creditor or debt collector could undoubtedly take a while. However, if you follow such a guide to debt settlement negotiations presented above, your work might be worth it in the end.

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