How to Negotiate a Debt Settlement

How to Negotiate a Debt Settlement
BY John Russo
Oct 22, 2018
Key Takeaways:
  • You may be able to settle your debts on your own.
  • You need to save or borrow a lump sum to offer your creditors. You might have to stop making payments to do this.
  • Then, contact your creditors, explain why you can't pay the full balance, and negotiate a lower amount.

Getting out of debt all by yourself can be tough—especially if you’re at the point where you can hardly make your minimum payments. But that doesn’t mean you should give up hope. There are ways to get out of debt without professional help, even if traditional methods like the debt avalanche and debt snowball won’t work for you.

One way to get out of debt without professional help is by settling your debt on your own. This process involves negotiating with creditors to get them to accept a lower amount of money from you to consider your debt paid. Debt settlement is the service that Freedom Debt Relief has been providing for clients since 2002, but you can also try to do it yourself. 

Regardless of whether you choose to settle debt on your own or work with a professional debt settlement company like Freedom Debt Relief, make sure to compare your options before you commit. In this article, we’ll discuss how DIY debt settlement and professional debt settlement differ, and which type of person may be best-suited for each of these solutions.

What Is Debt Settlement?

Also known as debt negotiation, debt resolution, or debt relief, debt settlement is process where you or a company you hire negotiates with your creditors to reduce your debt. During this process, you typically stop paying your creditors and set the money you would have paid your creditors into a savings account instead. Once you’ve saved enough money, you or the company you hired, starts negotiating with your creditors to settle the debt. After a settlement has been reached, the creditor is paid with money you have saved. Payment can happen all at once in one lump sum, or over a period of time in multiple payments. After the settlement amount has been paid in full, your creditor reports your debt as settled to the credit bureaus.

Student loans, mortgages, car loans, and other secured debt aren’t eligible for debt settlement—only unsecured debts like credit cards, personal loans, and medical bills can be effectively negotiated and reduced. 

If you’re struggling with unsecured debt that you just can’t pay because you’ve undergone a financial hardship like job loss, divorce, or the death of a loved one, debt settlement might be your best option.

Debt settlement is just another an alternative to other debt solutions like consolidation loans, balance transfer cards, home equity loans, credit counseling, and bankruptcy. Since everyone’s financial situation is different, it’s important to consider all of your options before committing to any solution.

Learn more about other debt relief options.

Professional debt settlement and DIY debt settlement have the same end goal of reducing debt, but they work in different ways to achieve the goal. The only way to decide which method will work best is by knowing the ins and outs of each process.

How to Settle Debt on Your Own

You already know that you don’t have to hire a company to help you negotiate with your creditors. What you may not know yet is how the DIY debt settlement process works. Here’s how to settle your debt on your own:

1. Evaluate Your Debt Situation

Before you start negotiating with your creditors, you need to have detailed information on your debt. This includes your creditors’ names and contact information, how much you owe them, what your minimum payments are, what your interest rate is, and what your current standing on the debt is.

2. Create a Negotiation Plan

Once you know who you owe and how much you owe them, you can create a negotiation plan for your debt. Look at your debts and determine how much you can actually afford to pay back on each of them. Also consider how you want to pay back the debt. Do you want to negotiate a lump sum payment to your creditors? Or would you rather pay over time? After creating your plan, you can figure out how much you’ll have to save each month in order to make the negotiations work.

3. Set up a Separate Savings Account

If you want to negotiate with your creditors, you need to offer them money in exchange for a debt settlement. Some creditors will let you pay them over a designated amount of time, but others will want their money as soon as negotiations are finalized. That’s why it’s crucial to start saving money as soon as you make the decision to settle your debt.

Take a look at your monthly budget and figure out how much you can save each month to put towards your settlements. Then, to make sure you aren’t tempted to spend the money you’re saving for negotiations on other things, set up a separate savings account specifically for the purpose of settling your debt. Do this as soon as you can, because it might take time to save up enough money. Use your negotiation plan as your guide to figure out how much you’ll need, and stay committed to your plan so that you can achieve your goal of settling the debt.

4. Establish Your Financial Hardship with Your Creditors

You can’t just call your creditors up and ask them if they’ll accept less than you owe them. If you want to get creditors to come to the negotiating table, you have to demonstrate that you are unable to pay your bills due to a financial hardship such as job loss, divorce, or the death of a loved one.

The most effective way to prove to your creditors that you are unable to make payments is by not making payments to them.

Letting your debt go into default may sound scary, but once your creditor sees that you are struggling to pay, they may consider negotiating with you. After all, if they refuse to negotiate, they might end up with nothing—especially if you are forced to file for bankruptcy. Negotiating and agreeing to less than the full amount is still better than getting $0.

While you are waiting to negotiate with your creditors, make sure you’re continually depositing into your savings account so that you have something to offer them when you start the negotiation process. This is critical.

5. Negotiate with Your Creditors

After enough time has passed and you have saved enough money, you can start calling your creditors and negotiating with them. Before you do, double-check that you’re contacting the right creditor because your account may have been outsourced or sold to a third-party collection agency. After verifying your creditors’ contact information, give each of them a call and outline your debt settlement plans with them.

Your creditors may resist negotiating with you at first. Some may refuse to negotiate with you entirely. But if you can prove that you have suffered a financial hardship, that you want to pay your debt but can’t, and that the only way that your creditor will be able to collect money from you is through a debt settlement, you may be able to get them to listen to your case. Learn more tips on how to negotiate with your creditors here.

6. Finalize Your Settlement

If you’re able to advocate for yourself and get a settlement that you and your creditor agree is fair, make sure you get your creditor to sign off on the new agreement in writing. This agreement should clearly outline the new settlement amount, along with any details you worked out with your creditor during the negotiation process. Without a signed agreement, your debt settlement plan doesn’t actually exist and any money paid to them may just be applied to the balance.

7. Stick to Your Plan

After getting your new agreement in writing, it’s crucial that you stay committed to the terms of your settlement. If you don’t hold up your end of the bargain, your settlement could become null and void, which means you may have to revert back to your original contract and be responsible for the original amount owed, plus the interest and fees that have been accruing!

While DIY debt settlement requires time and effort, the outcomes could be very rewarding if you play your cards right. But if you don’t feel confident that you can get through this process on your own, working with a professional debt settlement company like Freedom Debt Relief could be a better option for you.

Getting Out of Debt with Help from a Debt Settlement Company

It’s true that you can settle debt on your own. You can also change your own oil, fix your own sink, or move cross-country all by yourself. On the other hand, you could hire professionals to make all of these tasks a lot easier.

Professional debt settlement companies, like Freedom Debt Relief, make the debt settlement process more convenient and could provide bigger debt reductions than negotiating with creditors on your own. With our program, you could significantly reduce what you owe and be debt-free faster—without the stress and time-consuming effort of dealing with each of your creditors on your own. Here’s how our program works:

1. Build Up Your Funds

After enrolling in our debt settlement program, we’ll set up a personalized debt relief plan with affordable payments that you’ll deposit each month into a special purpose account you own and control. You’ll make these deposits instead of paying your creditors each month. As you add funds into this account, our expert debt negotiators create a custom negotiation plan based on your creditors, the amount you owe, and your available funds.

2. Let Us Negotiate with Your Creditors

Once enough funds build up into your account, we’ll contact your creditors and negotiate a settlement with them. Our aim during this negotiation is to get you the largest debt reduction possible. With over 15 years of experience settling debt, our debt negotiators know how to get you bigger settlements than you might get on your own.

3. Settle Your Debt

When our debt negotiators have reached a settlement with your creditor, we contact you to authorize the settlement before finalizing the agreement. We never settle a debt without your permission, and we don’t collect any fees until we settle a debt. Once a debt is settled, it can be repaid as a lump sum payment or a structured settlement paid over time. Our fees are also collected at this point. They may range between 15%-25% of your enrolled debt, depending on your state of residence, debt amount, and other factors. They are set once you enroll into the program and never increase.

4. Be Debt-Free

As soon as the full settlement amount is paid on all your debts, you no longer owe your creditors. Typically, this process takes 24-48 months.* Once all your enrolled debt is resolved, you’ll be free of those debts!

As the largest debt settlement company in the U.S., Freedom Debt Relief has resolved over $10 billion in consumer debt and enrolled over 650,000 clients since 2002. With our debt experts on your side, you could save more on your debt, pay less each month, and be out of debt in a fraction of the time that other methods take.

Learn more about how debt relief programs work.

Like any debt relief option, there are challenges and benefits associated with both DIY and professional debt settlement.

Challenges of Debt Settlement

Probably the biggest challenge of debt settlement is to stop paying creditors. On a personal level, you may feel uncomfortable stopping your payments because it’s been ingrained in you to pay your debts. But making payments on a debt you can’t afford is only prolonging the inevitable. Eventually, your debt could spiral out of control to the point where your only available option is bankruptcy. Choosing to stop your payments with the intent to negotiate a debt settlement allows you to save the money you’ll need to offer creditors when you are negotiating with them. But there are certain risks that come with letting your payments go past due.

Negative Credit Impact

If you are struggling with a lot of debt, at one point or another you probably had good credit. You might even have great credit right now. But when you let your payments go past due, your credit score could be negatively affected—regardless of whether you choose to settle your debt of your own or get professional help.

Once you’re debt-free, you should be in a better position to rebuild your credit.

If getting out of debt now is more important to you than maintaining your credit score, deal with your debt problem first.

Collection Calls and Letters

When you stop paying your bills, your creditors are going to notice. That means you’re likely to get collection calls and notices from creditors or the collection agencies they may sell your debt to. While these communications are unpleasant, they are an opportunity for your creditor to learn that you are undergoing a hardship. If you choose to answer a creditor call, it’s important to explain your hardship and how it’s hurting your ability to pay them right now. That way, you can build a case for yourself when it’s time to negotiate.

Unpredictable Results

Since debt settlement involves negotiations with creditors and every creditor behaves differently, your results will depend on your unique mix of creditors, your debt amount, your negotiation skills, and other factors. While this is true for DIY and professional debt settlement alike, Freedom Debt Relief has worked with nearly every major creditor and collection agency in the U.S., so we know how to get our clients the most advantageous results.

While debt settlement has its downsides, many people end up choosing this option because of its many benefits.

Benefits of Debt Settlement

Debt settlement offers a way out of debt that may not be as devastating as bankruptcy or as costly as a consolidation loan. It doesn’t require a high credit score, a good debt-to-income ratio, or unaffordable monthly payments. Here are some of the reasons why so many people choose debt settlement.


When you settle debt on your own, how much you save up each month in preparation for your negotiations is up to you—it could even be lower than your current minimum payments. This takes some financial pressure off you, but you have to make sure that you’re saving enough to cover your settlements when you’re ready to start negotiating.

If you choose to settle your debt with help from Freedom Debt Relief, we’ll create an affordable debt relief plan designed to fit your budget while also getting you out of debt as quickly as possible. Because of our years of experience negotiating with creditors, we know how much money it takes to get them to settle your debt and can customize your deposit amount based on this information. We’ll review your monthly deposit amount with you, and provide a savings estimate to make sure you’re comfortable with our program before enrolling.

If you choose to settle debt on your own, you don’t have historic data to reference to get a sense of how much they may be willing to settle for or even if they will be willing to settle at all. This makes it hard to know how much to save each month.


Depending on the terms negotiated with your creditors, you could be debt-free much faster with debt settlement than you would by making minimum payments. Minimum payments could take you 15+ years to get out debt if you owe $10,000 or more. Debt settlement could take a fraction of that time while saving you thousands on interest.

While the amount it takes to complete DIY debt settlement varies depending on your particular situation, Freedom Debt Relief could settle all your enrolled debt in as little as 24-48 months.*


If you choose the right debt settlement company to work with or you’re able to negotiate effectively, you could settle your debt for a fraction of what you owe. Freedom Debt Relief has a proven track record of helping our clients get out of debt for significantly less than they originally owed, but each debt is different and you could get bigger savings on some than others. Be very wary of any debt relief company that promises specific savings percentages before you even enroll, since no company can predict the future.


The debt settlement process may be stressful at times, but the idea of getting out of debt faster and for less than you owe can take a huge burden off your shoulders.

In their Freedom Debt Relief reviews, our clients often talk about how they can finally sleep again at night knowing that their debt is getting resolved.

Now that you fully understand the problems and benefits of debt settlement, you can learn how to choose the right option for you.

How to Choose the Right Debt Settlement Solution for You

DIY and professional debt settlement are two very different processes. Which one you choose depends on your personal financial situation and how much time you have on your hands, among many other factors. But there are some clear-cut signs that can help guide you to the best solution.

Consider DIY Debt Settlement if:Consider Professional Debt Settlement if:
Financial SituationYou owe less than $7,500 You only owe a couple creditorsYou owe more than $7,500 You are dealing with multiple creditors
Time and EffortYou have time to create your own negotiation plan You know how much you’ll have to save to make the negotiation workYou need help coming up with a custom debt negotiation plan You’re willing to pay a fee to have professional debt negotiators on your side
Negotiating SkillYou’re great at negotiating You are not intimidated about dealing with professional debt collectorsYou want to make sure you get the lowest settlement possible You don’t want to deal with debt collectors on the phone
ResultsVaries based on your debt amount and ability to negotiate with creditorsBe debt-free in 24-48 months* Significantly reduce what you owe
The bottom lineDIY debt settlement is a long and time-consuming process, but in the end, the money you save may be worth it.If you don’t have the time or skills to negotiate with creditors on your own, a professional debt settlement company like Freedom Debt Relief may be right for you. We have the knowledge and experience to get you the best possible settlements without having to stress about negotiating with creditors by yourself.

What to Do Next

By now, you probably have a good idea of whether DIY or professional debt settlement is right for you. But if you still have questions about which solution to choose, we could help. Our Certified Debt Consultants are just a phone call away, and they’re ready to walk you through all of your debt relief options. Call them now at 800-230-1553 to get your free, no obligation debt consultation. During this brief call, they can explain your options in detail, discuss your personal financial situation, and help you determine the right path. Even if our program isn’t right for you, they could help you find the one that is.

Still comparing your debt relief options? Download our FREE debt guide to find the right one for you.