Writing a Debt Settlement Agreement Letter [with Sample]

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Many people may find themselves in the financial position of having more debt than they can realistically pay with their income.

There are several reasons people get in over their heads in debt, and some of these reasons are good for getting debt settlement.

The best way to start reducing the amount they have to pay is to send a debt settlement agreement letter to their creditors. The letter needs to clearly state the hardships that have caused the debtor to be unable to pay his or her debt.

The person will not be successful in reducing his or her debt if they say they made too many purchases, and now they can’t pay for them.

There are several legitimate hardships for getting behind on debt payments including:

  • Illness or injury that precludes the person from working resulting in loss of income and high medical bills
  • High medical bills for the person of a member of his or her family
  • Reduced working hours with a corresponding reduction in salary
  • Reduction of income for the person or his or her spouse for any reason
  • Failed business
  • Being relocated because of a job
  • Being put in prison
  • Being called for military duty
  • Getting a divorce or separation
  • A death in the family
  • Major property damage due to fire, flood or other natural disaster

When writing the letter, the borrower should remember that the creditor has the right to agree or deny a reduction in debt and accept a lower amount. Most creditors are happy to receive some payment rather than no payment.

If there is no debt settlement offered, the creditor will have to hire a collection agency or even go to court, both of which they would like to avoid.

If the letter is courteous and polite, and offers a good reason for settling the debt, there is a good chance it will succeed. Some debts are past the statute of limitations and the creditor will be happy to get anything.

Here are some tips for writing the debt settlement letter:

  1. The letter should on one page. Any longer and the creditor may not read it all. If the letter contains the debtor’s hardships that caused them to stop paying their debt, the hardships should be briefly stated.
  2. The debtor should give his or her financial information. This means the exact amount of unsecured debt, the amount of income and the amount the debtor is willing to pay.
  3. Get any debt settlement in writing and signed by the concerned person. This includes the date on which the amount agreed upon should be paid in full

The letter should state facts and not be a place where the debtor complains about their hardships and goes on and on about their troubles.

This may cause the creditor to file the letter in the trash. If the creditor has agreed over the phone to the debt settlement, the hardships need not be mentioned in the letter.

Creditor Agreed To Terms

Below is a sample debt settlement agreement letter that is based on a previous conversation in which the creditor agreed to terms for debt settlement.

It should be written as a formal business letter and addressed to the creditor or person in charge of debt settlement.

The debtor can call the creditor and find out the name of the person in charge of their debt. The letter should be sent by certified mail, and the sender should keep a copy.

Sample Debt Settlement Agreement Letter

Your Name
Your Address
City, State, Zip Code


Name of Creditor
Address of Creditor
City, State, Zip Code

RE: Settlement of debt

Dear Name of Creditor:

This is a formal acknowledgement of our phone conversation on DATE in relation to settling my debt. We agreed that my outstanding debt is AMOUNT, and that you will accept the sum of LOWER AMOUNT.

We agreed that this will constitute payment in full and will discharge all due bills. 

Once the payment is made, no further steps will be taken on your part to collect the alleged debt. I will make the payment in full with a cashier’s check within five days after this agreement is signed.

I understand that if the payment is not made according to the agreed time, this agreement is null and void and the full amount I owe will be due. 

Once I have made the agreed payment, you will erase any negative information on my credit report and not place any negative information on my credit report in the future pertaining to this debt. 

Please sign the included copy of this debt settlement agreement letter and return it to me. Thank you for your kind consideration in this matter. If you have any questions, I can be reached at Phone Number or Email Address.


Your Signature
Your Printed Name

Signature of Creditor
Printed Name of Creditor

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