Debt Settlement Letter Templates

Debt settlement is not an easy task. However, there comes a time when you are left with no option, but to opt for it. In such a situation, you can initiate the proceedings by writing a debt settlement letter. In this article, we will provide two templates and a sample letter to give you a rough idea as to how you should go about writing one.
Penlighten Staff
Last Updated: Jun 21, 2018
Debt settlement, also known as debt negotiation or debt arbitration, is a process wherein the debtor and creditor get into a mutual agreement, which states that the debtor is not in the condition to pay the entire outstanding amount, and therefore, will pay a part of the total sum as payment in full. In some cases, the creditor may even exempt the entire outstanding amount, but the chances of this are rare.
Debt Settlement Letter
A debt settlement letter is one of the most important tools of the settlement process. In fact, it is this letter that initiates the entire process of settlement between the creditor and debtor. That being said, knowing how to write it can be very useful.
As it is a formal letter, it has to be presented in a precise manner. The best option is to keep it to the point, with no overtones. Given below are two templates to help you get familiar with the format of this letter.
Template #1
[Designation of the person in charge]<
[Name of the financial institution]




[First paragraph: A brief introduction about you and your account details]

[Second paragraph: Reason because of which you can't pay the outstanding amount and initiation of mutual agreement]

[Third paragraph: A brief note about attachments and conclusion]



[Name of the debtor]
Template #2
[Name of the person in charge]
[Name of the bank/creditor]



[First paragraph: Introduce yourself and give some details of your account/monetary transactions along with a passing reference to the financial crisis that you are facing.]

[Second paragraph: Give the details of the financial crisis owing to which you can't repay the debt and your proposal for mutual agreement.]



[Name of the debtor]
Sample Letter
The Manager
National Bank
Sacramento, California

Dated: November 11, 2010

Subject: Debt Settlement Letter

Respected Sir,

I am Ralf Richards, a resident of Sacramento, California. I have been holding a credit card account (No. ××××××××××) with the National Bank for the last 2 years. I have been using the same account to make all my transactions over this period.

As a result of some financial issues which have come up all of sudden, I was not able to pay the due installments for the last four months. The said financial crisis has left me crippled and therefore, it will be difficult for me to repay the due amount anytime soon as mentioned in our agreement. That being said, I would like to request you to take my financial situation into consideration and allow me to pay 50 percent of the outstanding amount as the full and final payment of my credit card debt.

I have attached all the necessary documents, which reflect my present financial situation, with this letter. I am hoping that you will take a note of my situation and allow me to pay a part of the outstanding debt so that I am relieved of the outstanding debt at the earliest.

Thanking you in anticipation.


Ralf Richards
You will have to make sure that you quote a decent amount as a part of this mutual agreement. Basically, the creditor will take interest in your debt settlement negotiation offer only if he is convinced that it's better to at least get a part of the outstanding amount than lose the entire amount.
If you still think it is a tough task, you can approach a debt settlement company. The people there are well-versed with the entire process of debt negotiation. In lieu of a stipulated amount as their fee, they will do all the formalities on your behalf.