Skip to main content

Tag: Debt settlement letter

How To Write A Debt Settlement Proposal Letter

Debt Settlement can be an excellent way to clear your debts quickly if you have the funds available. You can offer to pay a reduced amount to your creditors in one lump sum. They will often accept less than you owe because they can get all of the money immediately and close the account. This is a good option if you receive a lump sum from a lottery win or inheritance, for example.

Different creditors may have their own preferred method through which they prefer to receive a Debt Settlement offer. You should contact your creditors to find out how they want you to correspond with them. If your creditors say that they would like to receive your offer in writing, here are some tips on how to write a Debt Settlement proposal letter.

What to consider when writing a proposal letter

letter and brown envelope
  • Write clearly and professionally – The way that you write your letter is very important. It must be well written and clear, and you also need to be specific about the wording. Be clear that this is an offer of a full and final settlement and if accepted, the creditors agree not to pursue the debt in the future.
  • Provide account information – Your creditors need details about which account the letter is referring to, so include all account numbers and reference numbers you have that particular debt. These can be found on any letters you have from creditors. If you hold more than one account with a single creditor, let them know. They need to be clear about which debts you are offering to clear.
  • Give your personal details – Creditors need your personal details to be able to locate your account. Useful details to provide are your address, telephone number, email address and date of birth. If you have recently moved, you should also provide your previous address in case your creditors have not updated their records.
  • Explain your situation – Providing your creditors with information as to why you want to make an offer may be beneficial to them when considering whether or not to accept it. For example, if you believe you may otherwise be unable to honour the future contractual repayments in full this is likely to encourage them to accept a reduced settlement now.
  • A statement of your proposed amount – State clearly how much you are offering to repay. 
  • Debt settlement date – You also need to tell creditors when you expect to pay the money you owe. Make sure that this is a reasonable date.
  • Source of funds – Let the creditor know where you have obtained the funds to make the settlement. Your creditors may want proof of this before they agree to the proposal.

Pros of writing a debt settlement letter

There are several benefits of writing a debt settlement letter to your creditors and clearing your debts in a lump sum. 

  • Helps you out of financial hardship – If you are unable to pay your monthly repayments, a debt settlement can give you a clean slate. As long as it is accepted, your creditors will get a lump sum and you will no longer be stuck with monthly payments you cannot afford.
  • Improves your finances – Clearing your debt quickly takes the pressure off and makes it much easier to establish a monthly budget. By dealing with debt right away, you can get your finances back on track.
  • Pay less than what you owe – You may be able to save a significant amount of money by writing a debt settlement letter to your creditors, if they agree to the offer you have proposed.

Cons of a debt settlement letter

Although it can be a good way out of debt, there are some potential downsides to writing a debt settlement letter that you should consider.

  • Creditors are not guaranteed to accept – If creditors refuse your proposal, you are in the same position as before. 
  • Negative impact on your credit file – A debt settlement can be marked on your credit reports in a specific way. If your creditors report it as such, future creditors can see that you settled the debt and did not repay it in full. This can affect your credit score and may have an impact on your ability to borrow in the future.

Request a Debt Assessment

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.