How to prepare a debt settlement letter and its benefits
A debt settlement letter is considered as an effective tool for those debtors who have fallen behind their payments and are looking to settle their debts with the credit companies. A debt settlement letter acts as a binding contract between the debtor and the creditor. Its’ importance can be measured from the fact that an effective debt settlement letter can help the debtor to get out of debts faster and eventually, improve his credit score.
Debt settlement letters can be sent to the following types of creditors or lenders:
1. Banks.
2. Credit card companies.
3. Business creditors from whom you’ve purchased goods/services.
What to include in a debt settlement letter
There are a few basic things or points which should be there in a debt settlement letter. These are –
a) Your name, address and zip code at the top of the letter along with the date.
b) The collectors’ name and address along with your account number.
c) Full explanation of your debt situation and what you are planning to do.
d) Full information about your debts and how you’re planning to improve your chances to repay them.
e) A proposed settlement amount along with your terms.
f) Your signature.
How to prepare a debt settlement letter
The following are a few important tips which will help you to write an efficient and professional debt settlement letter –
1. Be direct but not threatening: Many people use the debt settlement letter to threaten the creditors of filing bankruptcy and lawsuits. This is not a good strategy to take as most creditors will not pay heed to your threats. Instead, be direct and let them know the purpose of the letter and what you are planning to pay off the debts. Inform them that you want to pay them for the debt if they’re willing to work with you. They have to know that you are serious before they will consider working with you.
2. Ask for credit help: As a part of the settlement process, you can request your creditors to remove any negative statements from your credit report. Ask them to help you improve your credit report in exchange of your promise to work with them and repay the debt.
3. Make an offer: Make an offer to your creditor to settle your debts. Analyze your finances and let them know how much you can pay as a lump sum amount. Most creditors may agree to this and take much less than what is owed. Therefore, you should not feel embarrassed about the amount you offer in the letter. Just make an offer and it is up to them to agree to that
4. Ask for a written proof: You should also request your creditor to send you a signed letter of settlement if they agree to your offer. This will protect you from potential negative future trouble since many creditors can take your money and sell your remaining debt to collection agencies. Be sure that you get some kind of proof of agreement before you actually pay them.
An efficient debt settlement letter forms the basis of a healthy negotiation process with the creditors. Most of the times, the creditors will agree to your offer and you might end up paying around 40-50% of what you actually owed.
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