Writing a Debt Settlement Proposal Letter: Sample and Guide

The debt settlement industry is growing fast, with its market size expected to rise by $5.07 billion at a CAGR of 10.3% from 2023 to 2028. This growth reflects the increasing financial struggles many Americans face today. 

If you're struggling to pay off what you owe, writing a debt settlement letter can help you work out a deal with your creditor.

In this blog, we’ll cover everything you need to know about creating an effective debt settlement proposal letter. We’ll start by explaining what debt settlement is and its possible implications. 

Then, we’ll explain the key parts of a strong settlement letter, ensuring you include everything needed to improve your chances of acceptance. Finally, we’ll share a debt settlement letter template so you can confidently draft your own letter. 

If you’re ready to take control of your debt, this blog will help you get started!

‍

What is Debt Settlement?

Debt settlement is a process where you negotiate with a lender or collection agency to pay off a debt for less than what you owe. This is usually done when you’re struggling to make full payments and want to avoid bankruptcy. 

• Lenders may agree to settle because they would rather receive a partial payment than nothing at all. 
• Debt settlement is often used for credit card debt, personal loans, medical bills, and other unsecured debts. 
• To settle a debt, you or a debt settlement company contact the lender and propose a lump-sum payment or a structured settlement plan.

Now that you understand what debt settlement is, let’s look at how it can impact your finances.

Common Implications of Debt Settlement

When you choose debt settlement, there are several important factors to keep in mind:

• Impact on Credit Score: Settling a debt means you didn’t pay the full amount owed, which can lower your credit score and make it harder to qualify for future loans.
• Tax Consequences: The Internal Revenue Service (IRS) may consider the forgiven debt as taxable income, meaning you could owe taxes on the amount that was written off.
• Financial Relief: Debt settlement can reduce your overall debt, making it easier to manage your finances and potentially helping you avoid bankruptcy.
• Uncertainty and Risks: There’s no guarantee that creditors will accept a settlement offer. Also, working with a debt settlement company comes with risks, including possible scams and high service fees.
• Credit Report Impact: Even after settling, the debt may still appear on your credit report, though it will be marked as “paid-settled” instead of “unpaid.”

With the basics of debt settlement covered, the next step is knowing what to include in your proposal letter to improve your chances of approval.

‍

Key Components of a Debt Settlement Proposal Letter

When writing a debt settlement proposal letter, it’s important to include all the key details to make your request clear and effective. Here’s what you should cover:

1. Your Personal Information

Start by providing your personal details so the creditor can easily identify your account.

• Full Name: Use the exact name associated with your debt account to avoid confusion.
• Mailing Address: Include your current address so the creditor knows where to send a response.
• Phone Number: Provide a reliable contact number in case they need to discuss your proposal.
• Account Number: List the account number linked to the debt to ensure they can locate your records quickly.

2. Creditor’s Details

Make sure your letter is addressed to the right company or department.

• Creditor’s Name: If dealing with the original lender, use their name. If a collection agency now owns the debt, use their details instead.
• Creditor’s Address: Include the correct mailing address where your letter should be sent.

3. Debt Details

Clearly outline the specifics of the debt you want to settle.

• Total Amount Owed: Mention the full balance before any negotiations.
• Proposed Settlement Amount: State how much you can afford to pay as a lump sum or in installments. Make sure this amount is reasonable based on your financial situation.

4. Payment Terms

Explain how you plan to make the settlement payment.

• Payment Method: Specify if you'll be paying by check, bank transfer, or another method.
• Payment Plan: If paying in installments, mention the number of payments and the timeline.
• Due Dates: Provide the expected payment dates to avoid any confusion.

5. Agreement Terms

Clarify what you expect once the debt is settled.

• Confirmation of Settlement: Request written confirmation stating the debt will be considered fully resolved once the agreed amount is paid.
• Credit Report Update: Ask that the debt be marked as "Settled in Full" or "Paid in Settlement" to minimize damage to your credit score.

6. Legal Disclosures

Some states have specific rules for debt settlements. Check your state’s requirements to see if any disclosures need to be included in the letter.

7. Signatures

Both you and the creditor should sign the agreement once the settlement terms are accepted. This ensures legal clarity and prevents future disputes.

8. Response Deadline

Set a deadline for the creditor to respond to your proposal. A reasonable timeframe (e.g., 14 to 30 days) gives them time to review your offer while keeping the process moving.

9. Call to Action

Clearly state what you expect next. Ask the creditor to either accept your proposal, counteroffer, or decline the request so you can take the necessary next steps.

Now, let’s bring it all together with a sample structure you can follow for your own settlement request.

‍

Sample Structure of a Debt Settlement Proposal Letter

A well-structured debt settlement letter template makes it easier for your creditor to review and consider your offer. Your goal is to be clear, professional, and persuasive while keeping the letter simple and to the point. Below is a sample format to help you draft an effective letter.

[Your Full Name]
[Your Mailing Address]
[City, State, ZIP Code]
[Your Phone Number]
[Your Email Address]
[Date]

[Creditor’s Name]
[Creditor’s Mailing Address]
[City, State, ZIP Code]

Subject: Debt Settlement Proposal for Account #[Your Account Number]

Dear [Creditor’s Name],

I hope you’re doing well. I’m reaching out regarding my outstanding balance on account #[Your Account Number]. Due to financial hardship caused by [briefly explain the reason, e.g., job loss, medical expenses], I am unable to pay the full amount owed, which currently stands at $[Total Debt Amount]. However, I would like to resolve this debt in good faith and propose a settlement.

I’d like to propose a settlement where I pay $ [Proposed Settlement Amount] as a lump sum to settle the account in full. If a lump sum isn’t an option, I’m willing to set up a payment plan of [number] monthly payments of $ [installment amount] over [timeframe].

If you agree to this settlement, I kindly request a written confirmation stating that:

1. The agreed-upon amount will fully satisfy the debt.
2. No further collection efforts will be made regarding this account.
3. My account will be marked as "Paid in Settlement" or "Settled in Full" with credit bureaus.

I appreciate your time in reviewing my request. Please provide a response by [reasonable deadline, e.g., 14 to 30 days from the letter date] so we can finalize the agreement and process the payment. You may contact me at [Your Phone Number] or [Your Email] if further discussion is needed.

Thank you for your time, and I appreciate your consideration. I look forward to settling this matter.

Sincerely,
[Your Full Name]
[Your Signature (if mailing a physical letter)]

‍

Conclusion

A well-written debt settlement letter template is key to successfully negotiating a reduced payoff with your creditor. A clear and detailed proposal increases your chances of acceptance, while written documentation ensures both parties are on the same page, protecting you from future disputes. Always request a confirmation letter stating the agreed settlement terms before making any payments. 

If you need expert guidance in handling your debt, South East Client Services Inc. (SECS) is here to help. They offer flexible payment options tailored to your budget, stress-free solutions, and friendly customer support to guide you every step of the way. Plus, you’ll have easy access to your account details via email, text, or their online consumer portal for a smooth digital resolution. 

Contact SECS and take control of your financial future!

‍