Debt Settlement Letter

A debt settlement letter is written by the person who is in debt (also referred to as the borrower or debtor), to the person whom he or she is in debt to (also referred to as the lender or the creditor), in order to negotiate or renegotiate the amount of debt or the rate of interest or the time period of the debt. The debt settlement letter is also called the debt arbitration letter or the debt negotiation letter.

For some conceptual information such as 'how to write debt settlement letter', 'what is a debt settlement letter' or 'what is debt consolidation letter', refer to the initial paragraphs. For a debt settlement letter template, you can directly proceed to the options given in the index.

Index

• Debt Settlement
• Debt Settlement Terms
• Sample Debt Settlement Letter
• Tips for Writing a Debt Settlement Letter

Debt Settlement
Before we proceed to the concept of debt settlement letters, let us understand in brief, what is a debt settlement. Letters for debt settlement are considered to be the instruments of such a settlement. Earlier, debt settlement was a clause that signified a full payment by the debtor of the sum agreed upon in the contents of a negotiable instrument. The process of debt settlement can also be initiated as a part of debt management and credit counseling services. One must note that these types of debt settlements were always done in accordance with a negotiable instrument. In short, the concept of debt settlement refers to settlement or rather the negotiation between the debtor and creditor.

To find out more on debt management and debt settlement, you can browse through answers to queries like 'how to get out of debt' or 'how to get out of debt fast'.

Nowadays, however, the concept of debt settlement has attained a much wider meaning and scope, as the concept is being slowly introduced into the market that provides credit creation facilities for individuals. The process of debt settlement usually takes place in a situation where the borrower (or the debtor) is unable to repay the lender (creditor). In such circumstances, the lender and the borrower reach some kind of agreement which is termed as a debt settlement.

The debt settlement letter can be written to the following types of creditors/lenders/credit creation companies.

• Credit Card Companies require a credit card debt settlement letter
• Banks
• Business creditors, from whom you have availed goods and services but not paid that appropriate consideration
• Lending Institutions

Debt Settlement Terms
The debt settlement letter usually documents the terms and conditions that the debtor can financially comply with. The creditor usually accepts the debt settlement terms through the debt settlement letter, as the recovery of the maximum possible amount that has been lent is possible. In the process of settlement, the parties accept to sustain losses, equally (in most of the cases). In cases of very huge debts where that debt is a secured debt and the collateral has a very high liquidation value, people tend to take help from debt settlement agencies, companies and lawyers in order to conduct the process of debt settlement. Same is the case for companies and large organizations. The debt settlement terms are usually as follows.

Terms According to Settlement	Party at Loss	Actual Effect of the Terms
Reduction in Rate of Interest	Creditor	A reduced rate of interest enables the debtor to pay off the debt quickly. However, the creditor sustains the loss of reduced interest to quickly recover as much as possible
Increase in the rate of interest	Debtor	The rate of interest is usually increased by the creditor when the debtor, requests a substantial extension of time period for an unsecured debt
Decrease in time period	Debtor	The terms of decrease in the time period is usually put forth by the creditor when the debtor demands a decrease in the rate of interest
Increase in the Time Period	Both Parties	The increase in the time period is not very beneficial for both the parties as the time period of the debt is increased and the amount of installment and interest gets distributed over a long period of time. This clause is rather risky for the creditor and as for the debtor, he has to pledge a collateral and the increase in the time period has a negative effect on the credit rating

These are some of the basic terms and conditions that are usually put forth in most of the debt settlement letters. While writing a debt settlement letter, one must note that during the process of negotiation, the creditor and the debtor have to sustain losses. Hence, the party proposing the clause, has to comply with other terms that are proposed by the other party. Be sure to use some very good debt management strategies and debt management programs, so you do not end up sustaining huge losses.

To know more about these programs you may refer to debt relief programs that are provided by debt settlement consultants and debt reduction services.

Sample Debt Settlement Letter
The following is a debt settlement sample letter that you can use to put forth some appropriate, fair terms and conditions in front of the creditor. Remember to be rational and fair as it signifies the understanding of your economic position. When you request for something, be sure that you promise something in return. You may also refer to the terms and conditions written in the aforementioned table.

Name: Address: Phone Number: Account Number/Credit Card Number: Name of Creditor: Department: Address: Respected Sir, Re: Account Number After providing our acceptance to the above agreement, my financial condition and status of assets and liabilities has drastically changed. According to the agreement I was supposed to pay a periodic installment of (1)_________ along with an interest of (2)________ every week/month/year for (3)___ weeks/months/years. Due to the drastic negative projection of my financial status, I would be unable to pay you the promised periodic installment. Hence, according to the pro-rata calculation I humbly request you to accept a reduced installment of (4)______. I would request you to accept these terms and conditions in order to authenticate the reduced installment proposal. Should my financial condition improve, I shall immediately get in touch with you, in order to recommence the initial format of installments. For your record, I have also enclosed a copy of my credit rating, personal budget sheet, and pro-rata calculation. I sincerely thank you for the tolerance and patience that you have shown. I am also extremely sorry for the difficulties that have been caused. Waiting for your reply. Thanking you, Yours Sincerely, (your name and signature)

1. State the initial amount of installment that you were supposed to pay
2. State the amount of interest that was agreed upon
3. State the time period of the loan in terms of weeks, months or years
4. State the new amount of installment that you wish to propose

Many a times, as a part of debt settlement letters, you would find that debtors request the creditors to wipe off their previous record for late payments, in return of a full repayment, which is instant or extremely speedy.

To know more on debt settlement and related concepts, read debt settlement pros and cons and credit card debt settlement process.

Tips for Writing a Debt Settlement Letter
The following are some of the tips that you can use while writing a debt settlement letter.

• Confirmation: The first step that you should take while writing a debt settlement letter is to confirm many factors that are associated with the debt. You have to basically confirm the total amount of the debt, the amount that you have already paid back and the amount that is due. Another very important thing that you must consider is the time period remaining. In many cases, people tend to get confused about the rate of interest and the time period, thereby setting off alarm bells, which is quite unnecessary. Verify all these facts with the creditor before you put down the terms and conditions in the debt settlement letter.
• Credit Rating: If you are proposing a quick repayment in total then you can also request the creditors to improve your credit rating and erase the late payment records.
• Three Dimensions of Repayment: Consider your financial situation and then propose the best possible 3 dimensions of the credit facility: time period, rate of interest and the best possible periodic installment. To get the best ratios for the 3 dimensions you can also consider debt relief options.

If the amount of debt is reasonable, then consider writing the debt settlement letter on your own. You can go through the debt settlement letter samples before you actually start writing. You may also refer to debt settlement letter templates while actually writing the letter. Another very good option is to resort to debt relief services and agencies in order to get an idea of debt consolidation and debt assistance.

Some governments also provide debt relief grants, which one can easily avail. Good Luck.