Debt settlement, also known as debt negotiation is an approach towards the reduction of the debt where the debtor and the creditor agree on a reduced balance that will be accepted as the payment in full. During the agreement period, all payments are made to the debt settlement company. This company then withholds the payment to the creditor, even if the money paid by the debtor is the entire amount or a lump sum of the whole negotiation. Once the debtor is in default, then the debt settlement company has to fix a lump sum payment, and the debtor has to pay that much money as a settlement.
The debtor’s credit rating will reduce drastically due to the default, especially if the debtor never lacked behind in making the payments before the transaction period commenced. Even after the accounts are settled, the default occurs on the debtor’s credit for seven years. Letters are a powerful way of communicating with creditors, debt collectors, and other businesses.
Debt Negotiation Letter Writing Tips
- As it is a formal letter, the language should be simple and easy to understand.
- The letter should be short, precise and right up to the point.
- You have to state how much you owe to the creditor and then inform how much you are willing to pay.
- Specify the mode of mode of payment you want to pay.
Use our free Debt Negotiation letter to help you get started. If you need additional help or more examples check out some of the sample letters below.
______________ (Your name)
______________ (Your address)
Date __________ (date of writing letter)
__________ (employee’s name)
__________ (employee’s address)
Dear Mr. /Ms. __________ (name of the concerned person),
I am a customer of your organization for the past ________ (mention period) years. I have taken a loan of ____________ (mention amount) on __________ (mention date). I have paid only few installments which amount to ___________ (mention amount).
Because of personal problems I could not concentrate on my business and incurred huge losses. Right now I am not in a position to repay the full loan amount. I have decided to make a payment of ________ (mention amount) through a cheque.
I kindly request the authorities to consider my case as genuine and accept the payment. I shall discuss with your legal officer about the payment of the remaining loan amount.
_____________ (Your name)
45, Main Road,
776, Bartington Road,
Subject: Negotiation of Debt
I am a customer of your company for the last two years. I have taken a loan of Rs 2,00,000 on DD/MM/YYYY. I paid the initial five installments on time and made a couple of other payments in irregular installments.
Due to the recession, my business incurred losses and I am not in a position to repay the complete loan amount at this point of time. I want to inform you that I can pay 50 percent of the loan amount now and the remaining amount by the end of next year. I shall pay an amount of Rs 1,00,000 in the form of a cheque within a couple of days.
I request the authorities to consider my case and accept the payment. I can meet your legal expert and seek his opinion as well in this regard.
Given below is a sample for a debt negotiation letter.
Subject: Negotiation of debt plan.
I regret to inform you that I am not going to be able to continue with my current payment scheme due to some unfortunate circumstances that I am currently facing ____________ (mention reason). But I do want to continue my payments and be debt free.
After going through my current financial condition and my monthly budget, I request for an alternative payment plan. I’m also requesting all other creditors for a reduction in the payment scheme until my situation improves.
I will resume my regular monthly transactions as soon as I recover from my current financial crisis. I shall keep you updated about any change in my financial situation.
I hope you will understand my situation and acknowledge my request.