How to Negotiate Debt Settlement on Your Own
Negotiating a debt settlement on your own isn't easy, but it can save time and money compared with hiring a debt settlement company.
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With do-it-yourself debt settlement, you negotiate directly with your creditors in an effort to resolve your debt for less than you originally owed.
This strategy works best for debts that are already delinquent, or not paid by their due date. That’s because as creditors start to see missed payments stack up, they may be more open to a settlement offer, since partial payment is better than no payment at all.
Here’s how DIY debt settlement compares to using a debt settlement company and how to successfully negotiate with a creditor.
» MORE: How does debt settlement work?
Why settle debts on your own?
Time and cost are the main differences between settling debts yourself and hiring a third-party debt settlement company.
Faster timeline: If you’re going the DIY route, you can get started immediately by calling your creditors.
If you’re working with a debt settlement company, you’ll undergo a more time-consuming process. This includes saving money in an escrow account (a holding account provided by the settlement company) for two to four years. The settlement company then uses that money to make a lump-sum settlement offer to your creditor.
No fees: There are no fees when you settle debts on your own. If you work with a debt settlement company, you’ll typically pay a fee of 15% to 25% of the enrolled debt.
For example, if you have $10,000 in debt, and the debt settlement company charges a 25% fee, you’ll pay $2,500 once that debt is successfully settled. This is in addition to paying the settled amount to your creditor.
Settlement companies also charge small setup and monthly fees that add up. If you pay a $9 setup fee, plus a $10 monthly fee, you’d pay about $370 over three years.
Should you ever use a debt settlement company?
If negotiating makes you nervous, then working with an experienced debt settlement company may be helpful, since they talk directly with creditors for you.
They also look at your budget and help you build a plan to save for a settlement offer. The more money you can save, the more likely it’ll be accepted.
Thoroughly research any settlement company before enrolling in a debt settlement program. A reputable company will be accredited by the Association for Consumer Debt Relief. They’ll also be transparent about fees and average timeline on their website.
NerdWallet has reviewed three of the largest settlement companies.
Our Debt Relief Partners
Accredited Debt Relief
Accredited Debt Relief NerdWallet partners with Accredited Debt Relief to provide customers with over $20,000 in credit card debt with settlement options to help them become debt free in 2-4 years by significantly reducing your monthly payment.
Freedom Debt Relief
Freedom Debt Relief NerdWallet partners with Freedom Debt Relief to provide customers with over $7,500 in unsecured debt with settlement options to reduce credit card debt, get one affordable monthly payment, and resolve their debt in as little as 24-48 months.
National Debt Relief
National Debt Relief NerdWallet partners with National Debt Relief to provide customers with over $10,000 in unsecured debt with settlement options to help them become debt free in 2-4 years with a total average savings of 23% after fees.
How to negotiate debt settlement
If you decide to negotiate with a creditor on your own, navigating the process takes some savvy and determination.
1. Confirm you’re a good candidate for debt settlement
Answer these questions to decide whether DIY debt settlement is a good option:
- Are your debts already delinquent? Many creditors won’t consider settlement until your debts are at least 90 days delinquent. After 120 to 180 days of delinquency, the original creditor may sell your debt to a third-party debt collector. You can still negotiate directly with your creditor.
- Do you have the money to settle? Some creditors want a lump-sum payment, while others may accept payment plans. The amount you’ll need varies based on your relationship with the creditor, how long the debt’s been overdue and the amount of debt you have. Whatever offer you make, ensure you have the cash to back it up.
- Do you believe in your ability to negotiate? Confidence is key to DIY debt settlement. Project competence and determination when speaking with creditors.
2. Know the terms you want from settlement
There are two things to keep in mind as you prepare to negotiate a settlement offer: how much you can pay to your creditor and how your settled debts are reported to the credit bureaus.
How much can you pay. When you negotiate a settlement offer, you're trying to pay a percentage of the debt you owe. If your debt is $5,000, for example, you may aim to pay only 50% of it.
Review your budget first and determine the actual amount you can pay. In this example, is $2,500 realistic?
How you want settlement reflected on your credit report. Debt settlement typically takes a big toll on your credit, but you may be able to salvage your score by clarifying how the settled debt is noted on your credit reports.
Settled debts are generally marked as “settled” or “paid in full for less than the full balance,” which doesn’t look great on credit reports. Instead, try to get your creditor to mark the settled account “paid as agreed” to minimize the damage.
3. Make the call to your creditor
Dealing with your creditor requires persistence and persuasion. You may be able to resolve the settlement in one go, or it might take a few calls to find an agreement that works for both of you.
If you don’t have luck with one representative, call again — you may get someone more accommodating. Ask for a manager if you don't make progress with frontline phone representatives.
Briefly discussing the financial hardship that made you unable to pay your bills can make the creditor more sympathetic to your case.
Not sure what to say? Here’s a script to get started:
“Hello, my name is ___, and I’m calling about my account ending in ___. I’ve fallen behind on payments, and I’d like to talk about hardship options.
I’ve been going through a really difficult time because of ___. I’ve looked closely at my finances, including my other obligations, and I won’t be able to repay what I owe.
Based on my budget, I can make a one-time payment of ___ to settle the balance.”
The creditor will likely try to negotiate, so start low with your initial offer, and then work toward a middle ground. For example, if you know you can only pay 50% of your original debt, offer around 30%, so you have room to go up.
Don’t agree to an amount you can’t afford.
4. Finalize the settlement deal
Before making any payment, get the terms of the settlement and credit reporting in writing from your creditor.
A written agreement holds both parties accountable. They have to honor the agreement, but if you miss a payment, the creditor can retract the settlement agreement, and you’ll be back where you started.
5. Make a plan to rebuild your credit
Settled accounts can stay on your credit report for seven years (starting from the first missed payment), so it’s important to make a plan to rebuild your score.
This includes prioritizing any upcoming bills or payments to avoid late payments being reported to the credit bureaus. Also aim to reduce the overall amount of debt you owe by keeping credit card balances low.
» MORE: How to improve your credit fast
Alternatives to debt settlement
Success can vary depending on the creditor. Some are open to settling, and others aren’t.
If you hit a brick wall, there are other ways to tackle your debt. This video takes you through key strategies, including debt snowball, debt avalanche and debt consolidation methods.
It also discusses the importance of building an emergency fund and reducing overall expenses, both of which keep you out of debt in the future.
Finally, a debt management plan is worth considering if you’re struggling with credit card debt in particular. These plans help you pay off your balances at a reduced interest rate over three to five years, and there’s no credit score requirement.
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