How to Write a Letter to Settle a Debt (with Sample)

When a person is having difficulty paying a debt because of unavoidable circumstances, they may write a debt settlement letter to request terms by which they can pay off the debt. This is the way to settle a debt such as credit card debt that is unsecured by property. 

The person may write the letter, or they may contact a debt settlement company or attorney. In many cases, especially with old debt, the lender is happy to receive a percentage of what is owed rather than receive nothing and possibly going to court or taking other expensive legal steps to get the money. 

Before writing the letter, the borrower should find out who is in charge of their account if it is a credit card company and address the letter to him or her. If the lender is an individual, the letter can be addressed to that person. 

The borrower may be tempted to send the letter to a generic company email address or fax number, but this will not reap the results they want. When the letter has been mailed by certified mail with return request to the responsible person, the sender should hear back within a specified amount of time. If this doesn’t happen, they can follow up with a call.

Most lenders will not consider debt settlement unless the borrower is behind in his or her payments. There are several valid reasons why a person is not able to make payments such as:

• Lack of work due to medical illness or injury
• Loss of job for either a partner or spouse
• Reduction of income due to reduction of hours of work
• Failed business for small business owners
• A death in the family
• Divorce or separation
• Incarceration
• Military duty
• Expensive property damage

The lender needs to know why the borrower can’t afford to pay, what his or her current financial status is and how much money they are offering as a settlement. A person who needs to write a debt settlement letter should:

• Keep the letter to one page. It should not be a sob story of several pages

• Give the correct financial information including details of the size of the debt, how much income they have and any disability or unemployment they get

• Be courteous and polite. The borrower has a better chance of getting what he or she wants if they remain professional

• It’s recommended to add some personal touches. This means some detail about the reason for requiring debt settlement, but not a long, doleful monologue. If the reason is a medical condition, it will be necessary to include medical documents as proof

• Offer a specific amount to settle the debt. The request shouldn’t be vague, which may leave room for misunderstanding. The exact amount the borrower is willing to pay as well as a payment schedule should be clearly mentioned. 

• Not sound like begging. Old debts are considered very hard to collect, and the lender or lending company may be delighted that an offer is being made and be more than willing to accept it

• Ask for a written agreement from the lender that contains the agreed upon amount and terms of payment

• A request to get a response within a specified amount of time

Below is a sample letter to settle a debt. It should be a formal business letter, and the borrower should keep a copy of all correspondence with the lender.

Name of Borrower
Address of Borrower
City, State, Zip Code
Account Number of Borrower if Applicable

DATE

Name of Lender
Name of Company of Lender if Applicable
Address of Lender
City, State, Zip Code

RE: Debt Settlement for Account Number NUMBER

Dear Name of Lender or Representative:

This is a formal request to settle my credit card debt of $2,500. I would like to make a one-time payment of $1,500 to have the debt closed. I am making this request because of the financial hardship I am experiencing after the death of my husband. 

He was injured in an automobile accident on DATE and died two months later. We used our savings to pay for medical bills, which leaves me in a desperate financial position at this time. I have enclosed the medical report and bills.

I am also requesting leniency on my mortgage payments for the next six months until I get a job as a dental assistant, as I don’t want to lose the house. My children are six and eight years old and I am receiving financial help from my parents until I can pay my own way.

I hope to receive a favorable response from you in writing within the next five days. I can be reached at Phone Number or Email Address if you have any questions or would like more information.

Thank you for your attention to this matter.

Sincerely,

Signature of Borrower
Printed Name of Borrower
List of Enclosures: Medical Report and Bills