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If you're worried about how to pay everything back, credit card debt negotiation could take the form of a partial debt settlement

How to Negotiate Debt Settlement on Your Own » Debt Settlement » How to Negotiate Debt Settlement on Your Own



When you settle your debt, you agree to pay less than what you owe. Depending on your situation, this may be the right form of debt relief for you.

Unlike some other methods, you don’t always have to use a professional service to settle. The following steps will teach you how to negotiate debt settlement on your own.

Before we get into the DIY instructions, keep in mind that sometimes calling in the professionals is the way to go. Just like you take care of your health day-to-day, but you wouldn’t try to perform surgery on yourself, serious financial challenges often require professional help. So, while this guide will teach you how to negotiate on your own, we also explain when and why you may need to get help.

Before you settle your debt

Verify the debt first

If you get contacted about a debt, always ask the person on the other end of the phone to verify the debt. They should be able to provide:

  • The full name of the person on the account (which should be your name).
  • The name of the original creditor, if it’s a collection account.
  • A summary of the full amount you owe.

If they cannot provide this information, or the information they provide does not match your records, dispute the debt. Ask for the agency’s name, the name of the representative that you’re speaking with, and a contact call-back number. Then ask that they send you a written notice about the debt immediately.

Once you receive this notice, you have 30 days to dispute the debt in writing. You should send the letter to the collection agency by certified mail return, receipt requested. This will ensure you know exactly when they received your dispute letter.

Document everything

From your very first contact with a creditor or collector, make sure to document and log everything that happens. Write down the names of those you talked to with contact information. Detail what was said in phone conversations in case you need future reference.

Also, make sure that your settlement is detailed in writing before you send a check or submit any form of payment. The debt settlement company should send you a formal settlement agreement by mail. It should include all of the details about the settlement. If the debt is still held by the original creditor, then a representative of that organization – and not the settlement company – should sign the agreement.

Make sure settlement is the best solution for your situation

Before you start negotiating a bunch of settlements, make sure that this is the best debt relief program to use for your unique financial situation. Credit card debt settlement is all about getting out of debt fast for the least amount of money possible. But it can also damage your credit.

If one or more of your accounts are still with the original creditors and you’re still managing to keep up with the required monthly payment on those accounts, you may be better off with another solution. For details on alternative methods of debt relief, skip to the “Explore other options” section.

How to negotiate credit card debt settlement yourself step-by-step

Step 1: Define your goals

All debt settlement negotiations start with an offer – either a collector reaches out to you or you reach out to a creditor.

It’s important when trying to negotiate a settlement that you have realistic goals. You’re not going to get out of debt for nothing – you’ll need to pay something to get your balances discharged. How much you end up paying depends on what you want to accomplish and who you’re negotiating with.

Here are some basic facts that can help you set the right expectations for credit card debt settlement:

  • The average debt settlement pays out roughly 48% of the original amount owed.
  • Each debt you settle will create a negative item on your credit report that will stick around for seven years and hurt your credit scores.
  • However, there are several solutions you can negotiate which may allow you to avoid credit damage, including:
    • Negotiating to list a credit account status as paid in full.
    • Negotiating to re-age an account to remove delinquent payments.
    • Using pay for delete to remove a debt collection account from your credit report.

In many cases, you can negotiate to minimize the credit damage typically caused by settlement during the settlement negotiation. You may need to pay a larger percentage of the original amount owed to get a more favorable outcome for your credit.

Step 2: Know who holds the debt

First, make sure you know who you’re talking to. There are a few different types of companies that you may be talking to for a settlement:

  • The original creditor – i.e. the credit card company that you have the account through
  • An in-house collections department may be trying to collect on a debt that’s past due but not charged off yet
  • A third-party debt collector that’s attempting to collect on a charged-off debt on behalf of the original creditor
  • A debt buyer, who purchased a portfolio of bad debts from the credit card company for a small percentage of each amount owed.

A debt buyer is much more likely to settle for a lower amount. They paid pennies on the dollar to purchase your debt from the credit card company. If they purchased your debt for 5% of what y6 Steps for Negotiating Debt On Your Ownou owed, then even a 10% settlement offer might be enough to get an agreement. They’d still make a 5% profit.

Original creditors are much less likely to settle and usually require higher amounts to get an agreement. Also, if the original creditor has not sold the debt, even a third-party collector can’t agree to a settlement without the creditor’s signoff.

So, if you negotiate with ABC collection company, they must get the agreement from Capital One or Wells Fargo or you may still face issues. You could settle with the collection agency, but the original creditor will continue to come after you for the remaining balance.

An easy way to check if the original creditor sold the debt is to review your credit report. A debt that’s been sold will show the account as paid on the original account. Then a new collection account will appear on your credit reports from each of the three credit bureaus. This is a good way to double-check who really holds your account.

Step 3: Reach an agreement

When you start your actual negotiation, start low. Even though settlement offers usually end up settling for just under half of what you owe, don’t start your negotiation that high. Most experts recommend starting around 15% of the amount owed and working up from there.

Also, don’t open with the fact that you want something like pay for delete or re-aging. Make a low-ball offer without any qualifications. Then, offer to pay a slightly higher percentage in exchange for the credit update.  This strategy will give you room to negotiate an effective settlement that works for your needs and credit.

In either case, the settlement offer is usually met with a counteroffer, where the other party tries to get an agreement that’s more favorable to them. After a series of offers and counteroffers, you and the collector should reach an agreement.

Always negotiate settlements in writing. Do not attempt to negotiate over the phone. In doing so, you may say things that can lead to issues, such as resetting the clock on the collection statute of limitations by acknowledging the debt. Use these debt settlement letter templates to get started with your negotiation.

Step 4: Sign the formal document

Once that agreement is reached, the terms of the settlement are laid out in writing and both parties sign the formal debt settlement agreement.

Take the time to read through the fine print and ensure that all the details are accurate. Once you sign, you can’t go back.

Remember, don’t pay anything until both parties sign this official document and you have a signed copy for your records.

Step 5: Pay the settlement amount

You pay the amount agreed to, usually in a single lump sum settlement.

Step 6: Make sure the creditor reports the final status of the account to the credit bureaus

The new status of your account should show up on your credit report. If it doesn’t, follow up with the creditor or collector again. You should not receive any more calls about paying this debt.

What to expect after you settle a debt

Even once you settle a debt, your work isn’t done.

Be prepared for extra taxes

According to the IRS, any portion of a debt you settle is counted as taxable income. Essentially, the amount you borrowed that you don’t have to pay back is treated as income. This means you should be receiving a 1099-c from the collector or creditor detailing the forgiven debt.

Unless you can qualify for exclusion due to insolvency, you may be required to pay tax on the canceled debt. You’ll need to work with a licensed tax preparer to avoid this added burden on your taxes next year.

Check your credit report

This is especially crucial if you negotiated special credit report terms in your settlement agreement. But even if you didn’t do so, you’ll still want to take advantage of your free annual credit review to make sure everything in your credit report accurately reflects the debt you settled.

Decide what to do about your other debts

Credit cards are some of the easiest debts to settle. If you have back taxes you need to pay off, you may be able to reach a settlement with the IRS using an Offer in Compromise. And if you have private student loans, you may be able to use the settlement to get out of those for less than you owe. If you have federal loans, debt settlement won’t work.

What to do if a settlement negotiation fails

If you aren’t successful at negotiating settlements on your own, don’t panic! There’s nothing stopping you from turning around and hiring a professional debt settlement company to do the negotiation for you. If a creditor won’t play ball or a collector refuses to agree to the terms you offer, thank them for their time and get in contact with a debt resolution specialist. They may have more success than you could achieve on your own – even if a previous negotiation already fell through.

When are you better off working with a debt settlement company?

Deciding whether you should work with a professional debt settlement company or negotiate a settlement on your own, depends on a few things:

  1. Who you’re negotiating with
  2. What you want to accomplish during the negotiation

If you’re talking to a debt buyer, then you’re usually better off negotiating the settlement on your own for two reasons. First, a debt buyer is the most likely debt holder to settle for a low percentage; you don’t need to be an expert negotiator to get a good deal.

Second, on collection accounts that have been sold to a third party, you almost always want to negotiate pay for delete.  Debt settlement companies always negotiate for accounts to be listed as paid as agreed. This wouldn’t remove the collection account from your credit report.

If your debts are still with the original creditor or with a collector working on behalf of the original creditor, then you’re in a situation where you’re usually better off working with a debt settlement company. These negotiations usually require more skill to get you out of the debt for a percentage of what you owe. In this situation, you usually just want to get out of debt for the least amount possible as quickly as possible. So, in this case, you want to call in the experts to get the fastest, cheapest possible exit from your debt.

Explore other options

If debt settlement doesn’t work out for you or you think there may be a better fit, review alternative debt relief solutions.

Debt management plan

A debt management plan (DMP), unlike debt settlement, helps you pay off everything you owe. It’s better for your credit score in the long run, but your monthly payments may not be as low as they would be with debt settlement.

To enroll, you must first talk with a credit counselor. Your initial consultation with the credit counseling agency is usually free, especially if you go with a nonprofit agency. The counselor will evaluate your debt and budget. Then, if they think a DMP is right for you,

Balance transfer card

A balance transfer allows you to consolidate all of your credit card debt onto one low-interest card. If you can pay off the debt within the card’s promotional period, you save a lot of money on interest. But if you don’t, you may get hit with interest all at once.


Your debt may be too high for you to ever feasibly repay it. Although bankruptcy is often the last resort, it can help you start over. To file for bankruptcy, get connected to the right bankruptcy professional. can match you with a trusted debt settlement company now.

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