How to Negotiate Debt Settlement on Your Own

Debt settlement means negotiating with your creditors to clear your debt for less than you owe. Usually, you offer them a lump sum payment, but sometimes creditors accept a series of payments. 

While many people use a professional debt relief company for settling their debts, DIYing it could save you money—if you're successful. 

Here's what to know about negotiating debt settlement on your own.

Can You Negotiate Your Credit Card Debt?

Yes, you can negotiate a debt settlement on your own, without professional help. If you’re successful, it could save you a significant amount of money on fees (debt settlement fees typically range from 15% to 25% of your enrolled debt).

Just be warned: It takes a good amount of time and effort to settle your debts, and there’s no guarantee it will work. Not all creditors are open to negotiation, and even if they are, you typically need to stop making monthly payments while you try to settle. This approach is likely to hurt your credit in the meantime and open you up to collections activity.

If you’re considering the DIY route, study how to negotiate debt settlement, and follow the steps outlined below.

How to Negotiate Debt Settlement on Your Own in 7 Steps

Before negotiating a debt settlement, consider whether it’s truly the best option—if your initial goal was to repay all of your debts in full but you feel you just can’t, debt settlement may be the most appropriate choice. But there are other avenues that might be more successful, depending on your circumstances.

You’ll also want to make sure you’re a good candidate for debt settlement. Generally speaking, you need to be at least a few months behind on payments before a creditor will consider settling. Even then, you typically need a large lump sum available for payment, so make sure you have the savings—or a plan to build them up.

Here are some alternatives to debt settlement you might consider:

• DIY payoff. If you can afford to put extra money toward debt repayment, this could be a good path toward getting out of debt. You could use the snowball method, in which you pay off your debts from smallest balance to largest, or the avalanche method, in which you pay off debts from highest interest rate to lowest.

• Credit counseling. If you think you can afford to repay all of your unsecured debt in three to five years, a debt management plan through a credit counseling agency could be a good choice. 

• Debt consolidation. Rolling all of your debts into a single consolidation loan with a lower interest rate could make it possible to repay everything you owe and avoid getting overwhelmed by multiple monthly payments.

• Bankruptcy. If you need legal protection, and/or if you have a lot of unsecured debt and little or nothing that you’d be forced to surrender to the bankruptcy court, talk to an attorney about whether you qualify for a Chapter 7 bankruptcy. This is a way to walk away from eligible debts. 

Documents and information to gather before negotiating

Before trying to negotiate a debt settlement, gather key documents and information on your debt. These should include:

• Account statements showing your balances

• Creditor contact information

• Debt validation letters

• Proof of your financial hardship

• Proof of funds available for a settlement, if applicable

Because you have 30 days to dispute a debt after receiving a validation notice from a third-party debt collector, keep your paperwork organized and pay close attention to dates.

Review your credit reports before negotiating debt to confirm that the debt notices you receive actually apply to money you owe. If the debts are not on your credit report, that’s a potential way to prove the debt notices aren't valid.

Track communication with your creditors by using a spreadsheet or simply keeping notes. Once you start reaching out, note details such as:

• Which creditors you speak to on which dates

• The names of the representative(s) you spoke to

• The offers you made

• The outcome of each discussion

Step 1: Determine how much you’ll offer

Before you contact your creditor, figure out what to offer. Debt settlements can range from 10% to 90% of your debt forgiven, so 50% is often a good goal. 

In general, the amount a creditor will accept depends on several factors. One of the most important is the age of the debt. If the original creditor is on the hook for the entire balance and the lender has not yet written it off or sent it out for collection, they will likely want a higher percentage. On the other hand, an older account purchased by a debt buyer for pennies on the dollar has a lot more wiggle room. So look at your outstanding balance, the owner of the debt, and the age of the account. Then pick a starting point for negotiations.  

One thing to be aware of is that you might have to pay taxes on the amount forgiven. The IRS has a worksheet to help you determine whether you’ll have to pay. The general rule—but talk to a tax professional—is that if your debts are worth more than the things you own (your assets), you are insolvent, and insolvent people don’t pay federal income taxes on forgiven debt. 

You can ballpark the impact of taxes to make sure debt settlement makes financial sense for you. Let’s say you negotiate $10,000 worth of debt down to $5,000. This means you may be taxed on the $5,000 that was forgiven. If you’re in the 12% tax bracket, that would cost you an additional $600 in federal taxes. 

Leave room in your negotiations for a professional debt relief company to take over if need be. For example, if your goal is to settle your debt for 50% of what you owe, don’t offer that from the start. Instead, you may want to offer 30% of what you owe as an initial offer. If you aren’t getting where you want to be, a debt relief professional may still be able to help.

Step 2: Expect to hear from debt collectors

While you are saving your lump sum and not paying your creditor, expect contact—perhaps a lot of contact. You may be able to limit or eliminate calls, letters, and texts from debt buyers or collection agencies by asking them to stop contacting you. Federal debt collection laws offer some protection from unwanted reminders from debt collectors. However, original creditors like a credit card company or bank aren’t covered by the same laws as debt collectors. 

Even if you could stop contact, you might not wish to. Your creditor may take you to court if they can’t get in touch with you. 

The pain of missing payments and being subject to collection calls and letters is a big reason to save your lump sum as quickly as possible.

Step 3: Call your creditors

Once you know how much you can offer, call your creditor and open negotiations. Jot down a few talking points first, including any extenuating circumstances or financial hardships you’re having (it could make them more sympathetic).

When you call, speak confidently. Tell the representative you can’t make your monthly payments, and say you’re willing to settle your balance with a one-time payment of $X as soon as possible. If you know you can only manage a certain amount, try offering a bit under this number to start. Then, if the creditor comes back with a counteroffer, it’s more likely to be in your price range.

If you’re unsuccessful, ask to speak to a manager or supervisor and try again. You may also want to try on another day to fully exhaust your options. 

Keep in mind that your original creditors may only be willing to discuss debt settlement if your accounts are significantly past due—usually 90 days or more. You should also know that once an account is charged off—which usually happens after 120 to 180 days—negotiations are typically handled by collection agencies or debt buyers rather than the original creditor.

Finally, if possible, have money available before calling creditors to negotiate. Having funds available for immediate payment could strengthen your offer and make it more likely to get accepted. 

Step 4: Get set for counteroffers and pushback

Negotiating is a back-and-forth process—it's common for creditors to counter your initial offer. When you receive a counteroffer, take some time to consider it. If the counteroffer is too high, you can politely turn it down. Then, repeat your original offer or propose a slightly higher amount that’s manageable.

Here’s how to handle counteroffers effectively:

• Stay calm and professional. Negotiations can be tense, and remaining composed shows you’re serious and committed to resolving the issue.

• Repeat your position. Politely remind the creditor of your situation. Explain why your offer is fair.

• Know when to compromise. If the creditor's counteroffer is close to your limit, consider accepting it. That may help move the process forward.

Remember, it’s a negotiation, and both parties want a resolution. So be patient and persistent in finding a deal that works for you.

Step 5: Understand what to say (and what not to say) to creditors

Effective communication is key when negotiating your debt. The right words could help ‌bring success, while the wrong ones could derail negotiations.

What to say:

• Be honest, but brief. Explain your financial troubles, and emphasize your desire to resolve the debt.

• Show you're willing to settle. Let the creditor know you want to pay the debt. A settlement is in their best interest.

• Propose a specific amount. Instead of asking what they’ll accept, confidently offer a specific settlement.

What not to say:

• Avoid emotional appeals. Stick to the facts. Don't get too emotional, as it could weaken your position.

• Don't show all your cards at once. There’s no need to mention any extra funds or assets, and doing so might lead the creditor to demand more.

• Avoid making threats. Threatening language could harm the negotiation process. Stay focused on finding a mutually beneficial solution.

Step 6: Finalize your settlement terms

If your creditor agrees to settle, get the terms in writing before making any payments. The written agreement should specify how much and in what form you’ll pay, when you’ll pay, and what the creditor will do in return—like reporting your account balance as zero, or noting your balance as “paid as agreed” on your credit report.

Only once you have an acceptable written and signed agreement should you send your payment. When you do, get a receipt of the transaction, and an account statement showing your balance as paid. Follow up in a month or so to make sure your creditor kept its end of the bargain.

Step 7: Follow through on payments

After reaching a settlement, make the agreed payments so you avoid more debt and penalties—missing a payment might even void the agreement. 

Here’s how to stay on track:

• Set up automatic payments. Set up automatic transfers from your bank account to ensure timely payments.

• Keep detailed records. Save copies of your agreement and proof of each payment. This could help resolve any discrepancies.

• Communicate with your creditor. If you face an unexpected financial issue, contact your creditor and discuss possible solutions. It’s better to be proactive than to miss a payment without explanation.

Paying your debts fulfills your part of the deal, and gets you closer to a debt-free future.

When to Consider DIY Debt Settlement

DIY debt negotiation could be an option if you genuinely can’t afford to fully repay your debts. But if you're making payments on your debt, even late ones, your creditors may not be willing to negotiate your debt down to a smaller amount. That you're making payments tells them you are capable of paying—it just might take you longer than they'd like it to.

If you're 90 days or more past due on your debts, consider trying to settle your own debt (that’s typically when creditors are more willing to negotiate). The lateness of your payments tells them they're less likely to get repaid, so they may be willing to accept a smaller amount if it means getting something instead of nothing.

When you contact your creditors, make sure you're clear on what you want. Some creditors may offer temporary hardship programs, like forbearance, that allow you to pause payments on your debt for a period of time. These programs usually do not reduce the amount of debt, whereas reduction is the very goal of debt settlement.

If you're going to consider DIY debt settlement, be confident in arguing your case, and be persistent. Creditors don't like to settle debts, because they give up money they're technically entitled to. So be sure you're mentally prepared for what could be an uphill battle.

Having a lump sum to offer creditors could improve your chances of getting them to agree to a debt settlement. You may want to wait until you have a reasonable offer to make before asking your creditors to settle your debt.

DIY Debt Negotiation vs. Hiring a Professional Company

The main difference between negotiating your own settlement versus using a pro is often how much time and effort it takes. A professional will do all the calling, haggling, and negotiating on your behalf. When you take the DIY route, it requires more work on your part. You have to determine how much to offer, and do the direct negotiations with your creditor(s), too. 

Professional debt settlement companies may have another advantage—they already have contacts and relationships with major creditors, and can communicate with them more easily. 

There are also fees to consider. A professional company charges for its services. At Freedom Debt Relief, debt settlement fees are about 15% to 25% of your enrolled loan balances—but only after FDR has negotiated a settlement, you approve it, and at least the first payment is made. While DIYing doesn’t come with fees, it means spending time away from other priorities (or possibly even work). 

Pros and Cons of a DIY Debt Settlement Negotiation

Learning to negotiate debt settlement on your own could save you money. Professional debt settlement comes with fees if the settlement is successful. The downside of DIY is that your chance of success may be lower. Debt settlement companies are skilled in negotiating settlements, and their pre-existing relationships with creditors may help your case. Most Freedom Debt Relief clients settle their first debt within a few months.

Debt Negotiation Tips from Freedom Debt Relief

Preparation is key if you plan to negotiate a debt settlement with your creditors on your own. 

To up your chance of success:

• Write a script. Write down what you plan to say, and rehearse it with a friend or loved one.

• Know the numbers. Establish a hard maximum for your settlement amount. This helps you when negotiating on the fly.

• Get a free debt evaluation. Before you negotiate, find out which of your debts may be eligible for debt settlement.

• Be confident. Don’t waver, and keep repeating that you are experiencing financial hardship and are willing to negotiate a final settlement.

• Talk to several people. If the first representative you speak to isn’t helpful, ask to talk to a manager. You can also call back on a different day or at a different time to try and reach someone else.

• Start low. Lowballing with your first offer increases the chance any counter offer will still be within your budget.

• Manage your expectations. Understand that it’s not always possible to settle, and that not all creditors are willing to negotiate. 

If these tactics don’t work, consider bringing in a pro who knows how to negotiate debt settlement more successfully. At Freedom Debt Relief, our specialists focus on customized debt relief programs for people who want to settle their debts as quickly as possible.