How to Make a Debt Settlement Agreement
George Simons | March 03, 2023
Summary: You might not be able to repay all that debt, but you know it won't get thrown out in court. Learn how to make a settlement agreement, repay what you can, and move on with your life.
Are you behind on your credit card payments? Can't pay your medical bills? Bought a car you can no longer afford?
If so, don't worry about going to jail or getting your car taken away right now. You may not even need to sell your plasma or list your Ty beanie baby collection on eBay, because a debt settlement agreement could be a better alternative.
About one in 13 consumers with a credit record has made a debt settlement agreement on one or more of their accounts, and the number of debt settlements has been on the rise since 2016. Clearly, there's a reason so many people are hopping on the settlement train.
What is a debt settlement agreement, and how do you get one?
What is a debt settlement agreement?
A debt settlement agreement is like a super awesome secret handshake between you and your creditor. (Okay, maybe it's not quite that chummy, but it is a chance to cut a good deal with the people asking you to cough up the cash.)
Your creditor agrees to compromise the debt (meaning: you pay less!), and you agree to pay this new amount upfront or in the form of a payment plan. You could also pay the debt in full, but we assume you probably wouldn't be in this situation if that were a viable option.
You can use SoloSettle to send and receive debt settlement offers until you reach an agreement with the debt collector.
What is a lump-sum payment?
Most creditors agree to let you pay less debt than you owe, as long as you pay it all at once. After you make this lump-sum payment, the debt is forgiven. Time to party! (But don't go getting yourself into debt again, of course.)
What is a payment plan?
Sometimes a creditor will allow you to make a payment plan for your remaining debt. You'll end up paying more than you would if you paid it all upfront, but the total will still be less than the amount you owe.
Though a bit more costly than a lump-sum payment, this could be an ideal path to take if you need a more manageable way to pay off your debt. But remember, not all creditors want to run the risk of you defaulting on your payments, so this might not be possible.
Respond to debt collectors with SoloSuit and win in court.
When to get a debt settlement agreement
There are some clear benefits to opting for a debt settlement agreement, especially in comparison to continuing to ignore the debt or paying the debt in full.
If you have debts that are more than 90 days delinquent, have enough money to settle, and you're a decent negotiator, it could be a great route to take.
Here are some other pros and cons to consider before you go for it.
Benefits of a debt settlement agreement
In most debt agreements, the debtor ends up paying a fraction of the outstanding debt. Sweet deal, right?
Plus, you get to wipe out the debt sooner than if you were to make regular payments for the full amount.
In short, not only are you getting rid of your debt at a faster rate — but you're also paying less than you originally owed, and your creditor is cool with it. Cheers to that.
Drawbacks of a debt settlement agreement
After the debt is paid off, the creditor reports the settlement to the credit bureaus, which probably won't have much of an impact on a bad credit score — but keep in mind that a good credit score could take a temporary hit. (Still, this option is often better than ignoring the debt completely.)
In some cases, you may also have to pay taxes on the debt that is canceled out in your settlement. So, take time to consider the pros and cons of debt settlement before you decide if it's right for you.
Make the right defense the right way with SoloSuit.
3 steps to making a debt settlement agreement
By opting for a settlement agreement, you'll be kissing your debt goodbye soon. Don't stress — this will all be behind you before you know it. Here's what to do when making a debt settlement agreement.
1. Figure out who owns your debt
You may owe a bunch of money, but it's not a retailer or even a credit card company knocking on your door asking you to pay up. Instead, your debt has been passed over to a collection agency — and sometimes it can be tricky figuring out exactly which agency you're dealing with.
Start the process of settling your debt by identifying who owns your collection account. This might be on the pile of bills you've received in the mail, or you can look it up on the Annual Credit Report website.
2. Negotiate with a collection agent
Now is the time to brush up on your negotiation skills, because the collection agent isn't going to let this one slide easily. SoloSettle makes the negotiation process easy, using a tech-based approach that allows you to send and receive settlement offers almost instantaneously.
Most collection agencies buy debt for 4-8 cents on the dollar, then hope to collect roughly 11 cents in return. Knowing that these folks aim to double their money will give you a good starting point. Call the collection agency and explain why you're not able to pay off your full debt, then make an offer to settle.
Begin with a low proposal (4-5 cents), then make a counter-offer from there as needed. Play it cool — the waterworks probably aren't going to do you any good here.
If you end up making a deal that works for your budget, great! But don't be afraid to walk away if you can't come to an agreement that suits your financial situation.
3. Formalize the agreement
Take a deep breath. You did it! But all that skillful negotiating could go to waste if you don't get it written down. Ask the collection agent to send you the official debt settlement agreement via mail, email, or fax, making sure it includes:
- Name of the original creditor and collection agency
- Date of agreement
- Your name and account number
- Settlement amount
- Payment plan details (dates and additional terms of agreement)
Check out this video of SoloSuit's CEO breaking down the part of settling a debt:
Deciding if a debt settlement agreement is right for you
Debt settlement agreements are increasingly common among today's consumers. But is it the right choice for you?
If you have the money to settle, are ready to negotiate, and want to pay off your debt more quickly, it's certainly a good option to consider.
In short, here are the best tips and tricks for reaching a debt settlement:
What is SoloSuit?
SoloSuit makes it easy to respond to a debt collection lawsuit.
How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.
>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance
What If I Haven't Been Sued Yet?
If you've only received a collections notice, but not a lawsuit, the best way to respond is with a Debt Validation Letter. When a debt collector contacts you in any way, whether it's by phone or mail, you can respond with a Debt Validaiton Letter. This letter notifies the collector that you dispute the debt and requires they provide proof you owe the debt. They can't call you or continue collecting until they provide validation of the debt.
Learn more about the Debt Validation Letter here.
Get started with a Debt Validation Letter here.
How to Answer a Summons for Debt Collection in your State
Here's a list of guides for most of the 50 states.
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Guides on How to Beat Every Debt Collector
Being sued by a different debt collector? We're making guides on how to beat each one.
- Absolute Resolutions Investments LLC
- Accredited Collection Services
- Alliance One
- Amcol Clmbia
- American Recovery Service
- Asset Acceptance LLC
- Asset Recovery Solutions
- Associated Credit Services
- Autovest LLC
- Cach LLC
- Cavalry SPV I LLC
- Cerastes LLC
- Colinfobur
- Covington Credit
- Crown Asset Management
- CTC Debt Collector
- Delanor Kemper & Associates
- Eagle Loan of Ohio
- Educap
- Estate Information Services
- FIA Card Services
- Forster & Garbus
- Freshview Solutions
- Harvest Credit Management
- Howard Lee Schiff
- Hudson & Keyse LLC
- Integras Capital Recovery LLC
- Javitch Block
- Jefferson Capital Systems LLC
- LVNV Funding
- Mariner Finance
- Medicredit
- Michael J Adams PC
- Michael J Scott
- Midland Funding LLC
- Mullooly, Jeffrey, Rooney & Flynn
- Mountain Land Collections
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- National Collegiate Trust
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- NRC Collection Agency
- OneMain Financial
- Palisades Collection LLC
- Paragon Revenue Group
- Pinnacle Collections Agency
- PMAB LLC
- Portfolio Recovery Associates
- PYOD LLC
- Reunion Student Loan Finance Corporation
- Revenue Group
- RSIEH
- Security Credit Services
- Sherman Financial Group
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- Transworld Systems
- Tulsa Teachers Credit Union
- UCB Collection
- Velo Law Office
- Velocity Investments
- Waypoint Resource Group
Win Against Credit Card Companies
Is your credit card company suing you? Learn how you can beat each one.
- Bank of America
- Capital One
- Chase
- Credit One Bank
- PayPal Synchrony Card
- SYNCB/PPEXTR
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- Target National Bank
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