Debt Consolidation

How to Negotiate Your Own Debt Settlement

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If you’re behind on paying your debt and dodging calls from your creditors, you may be contemplating your options to deal with the financial pressure. One avenue many consumers tend to overlook is negotiating with their creditors directly, as they assume that’s a job only a lawyer or a debt settlement company can accomplish.

But negotiating your own debt settlement is not only possible, but it can also be very fruitful. While it may seem like a daunting task, with an organized plan of attack, consumers can successfully work with their creditors to reduce what they owe and arrange affordable payments.

In this article, we’ll dig into how to negotiate your own debt settlement, including the pros and cons of doing it on your own and how to get help if you need it.

Before you negotiate your debt

What kinds of debt do you have?

Debt settlement: Beware of scammers

How to find help if you don’t want to negotiate alone

Preparing a proposal

Making the call to your creditors

Pros and cons of settling your debt

Alternatives to settling your debt

Negotiating debt settlement on your own

Before you negotiate your debt

New York-based attorney Leslie Tayne said before consumers negotiate their debt, they should determine whether or not they are willing to devote the necessary time to the process.

“It can become almost a full-time job depending on how many creditors you have and who they are,” she said. “It can be extremely time-consuming. So the no.1 thing is, do you have the time to do it?”

Additionally, another key to successful debt negotiation is to approach it in an organized fashion. “You have to be incredibly organized,” Tayne told LendingTree. “You need to be really detail-oriented with it because it can be an overwhelming process.”

Here are some steps to prepare for negotiating your debt.

Make a list of all your debts.

First, determine which creditors you will be approaching and write them down. Tayne said an excellent way to do that is to have a notebook dedicated to your debt settlement and to have a separate section or page for each creditor.

For each debt, note the following:

  • The name of the creditor
  • The amount owed
  • Any fees or interest payments associated with the account
  • If you are dealing with a collection agency, also take note of:
  • The name of the original creditor
  • What the debt is for and when it incurred

Assess how much you have available to settle the debt.

Before attempting to negotiate with your creditors, have an idea of how much money you have to work with. “You need to go through your budget to determine what it is you can afford to pay and where you want to be,” Tayne said.

Also look to see if you have the ability to make any lump-sum payments on your debt.

Act early.

If you are already severely behind on your payments, address it as soon as possible before you miss your window to negotiate. Some creditors may be unwilling to settle with you if they have already sold your debt to a collection agency or if they began the process of taking legal action against you.

Know your rights.

“You’ve got to research and know your rights under the law,” Tayne advised. “Know what a creditor can do at different stages, and know what your vulnerabilities are in order to negotiate effectively.” For example, if a creditor threatens to sue you for nonpayment, but you have no job and no assets, Tayne said you would not be vulnerable to a lawsuit.

To start, research the statute of limitations (how long a debt is collectible) for your state.

Document all communications with your creditors.

Plan to keep meticulous notes throughout the negotiating process. Tayne advised that each time you talk to a creditor you record the date and time of the call, to whom you spoke, the number you dialed and what occurred or was discussed during the call.

What kind of debt do you have?

Tayne said some debts are easier to settle than others depending on the type of debt, the age of the debt and who the specific creditors are.

She said the least difficult debts to settle are old delinquent debts that are very close to passing the statute of limitations phase.

“If you have a 6-year-old, 7-year-old or 10-year-old debt, know that you’re not necessarily required to pay it, but if you make a payment you ‘restart the clock.’” Again, be sure to research the statute of limitations specific to your state and to the type of debt.

Money owed for federal taxes.

Taxes can be challenging to negotiate, but in some cases, you may be able to submit to the IRS an “offer in compromise,” which allows you to settle your tax debt for less than the total amount owed. The IRS will review your income, expenses and your ability to pay, among other factors, before accepting your offer.

Federal student loans.

“Federal student loans are not easy to settle at all. They are probably the hardest debt to negotiate,” Tayne said. It is rare, but in some cases, the Department of Education and guarantee agencies may settle Federal Family Education Loan (FFEL) Program loans or Perkins loans, including ending the collection of the loans or reducing the principal owed.

Medical debt.

Your ability to negotiate medical debt will depend on the provider or hospital. Some will be willing to make payment arrangements or to provide a discount if you’re able to offer a lump-sum payment.

Credit card debt.

Settling credit card debt very much depends on the creditor, according to Tayne. Some are more willing to work with you than others.

Debt settlement: Beware of scammers

Unfortunately, people who are struggling financially and are in search of relief from their debt can easily fall victim to scams, which are prevalent in the debt settlement industry.

Here are some red flags you may be dealing with a scammer:

  •  The company requires upfront payment before negotiating your debt
  •  The company guarantees specific results before they settle your debts
  •  They tell you to stop paying your bills or communicating with your creditors without explaining the risks involved
  •  They call you about a “new government relief program”

Keep conventional wisdom in mind. If something sounds too good to be true, it probably is.

However, there are reputable debt settlement companies, and using one can potentially save you some time and the back-and-forth that goes along with negotiating your debt. Check out an overview of some of the biggest debt relief companies here.

No matter what, there are fees and risks associated with using any debt settlement company. Furthermore, creditors are not required to negotiate with third parties, and in many cases, some do not.

How to find help if you don’t want to negotiate alone

There are options available if you need assistance with negotiating your debt.

Credit counselors.

Working with a nonprofit credit counselor can provide you with additional help and resources in negotiating your debt on your own, or it can result in entering a debt management plan with your creditors.

Attorneys who specialize in debt settlement.

Some attorneys, like Tayne, specifically focus on negotiating a consumer’s debt. Because they are well-versed in consumer rights and are familiar with the parameters within which creditors work, this could be a good option.

Community resources.

You may be able to find local organizations that provide resources to help you negotiate your debt.

Preparing a proposal

If you decide to negotiate your debts on your own, you’ll need to prepare. After gathering the information on each debt and doing your preliminary research, you can begin assembling your approach for negotiating.

Know what you can pay.

Again, before speaking with creditors, know what you can realistically afford to pay. Tayne said many consumers succumb to the pressure during negotiations and agree to payment arrangements they can’t afford to keep.

“Be prepared financially by going through your budget and determining what it is what you have available to allocate to each one of your accounts you’re looking to resolve,” she advised.

Describe your financial hardship.

If you have a legitimate reason for why you fell behind on your payments such as a job loss or illness, share that with your creditors. But Tayne warned that consumers should be truthful when discussing their situation, as creditors can verify the information you provide. She said you should be prepared to provide proof, if necessary.

“An explanation is a good thing,” Tayne said, as some creditors will be sympathetic to your situation. “But if you can’t provide documentation to back up your position, then you’re going to have a hard time.”

Be realistic.

According to Tayne, many consumers unrealistically expect to have their debt settled at 20 or 30 percent of the total amount owed. But she said a more realistic range is somewhere between 50 to 80 percent, depending on the creditor.

“You can go in knowing that you’re going to get a discount. Each and every creditor will have a different percentage of discount depending on your financial situation, the stage of delinquency and their process.”

Making the call to your creditors

Once you’ve organized your debt and assessed your ability to pay and negotiate, you’re ready to approach your creditors. Reach out to each one individually, keeping these tips in mind.

Speak with someone authorized to negotiate your debt.

More likely than not, the person you initially get on the phone is not going to be qualified to settle your debt. Ask to talk to a supervisor or someone who is authorized to negotiate the debt. If necessary, end the conversation and call back to speak to someone else.

Use the threat of bankruptcy cautiously.

Be careful of using the threat of bankruptcy in your negotiations. Tayne says it’s more of an idle threat that won’t necessarily produce any results.

“It’s kind of like crying wolf, and each creditor is deeply immune to that,” she said. However, if you are legitimately considering filing for bankruptcy, then you should share that information.

Stay calm and be polite.

One of the hardest parts of negotiating your debt is keeping the emotion out of it. It often negatively affects a consumer’s ability to negotiate, according to Tayne.

“You are emotionally attached to your debt and your financial situation, and therefore you might not be in a position to make the best decision,” she said. Regardless of what happens during the calls, maintain your composure and be polite. You are more likely to get favorable results.

Don’t provide postdated checks or give access to your bank account.

Tayne warned that some creditors may urge you to provide postdated checks or permission to debit your bank account. Avoid doing either.

Get the agreement in writing.

If you reach a deal with your creditor, ask for it in writing before making payments. Expect pushback from the creditor on this, but Tayne said to be firm in your request.

When you pay off the debt in full, ask for written documentation that the debt is settled, and check your credit report to make sure the payments were reported accurately.

Pros and cons of settling your debt

Settling your debt with your creditors can provide an immense sense of relief, but may also come with some serious drawbacks.

Should I settle my debt?
Pros Cons
A fresh start. Renegotiating your payment terms is almost like resetting the debt. Be determine to make your payments on time going forward. Hit to your credit score. Some debts that you settle may appear as “settled” on your credit report, indicating that you did not pay your debt in full. During negotiations, you can ask your creditors that they report the debt as paid in full, but they are not required to do so.
Room in your budget. Negotiating your debt will allow you to manage your other monthly obligations better. You may need to pay taxes on what’s forgiven. If you settle for less than you owe, the amount of debt you were forgiven may be considered taxable income, and you may be on the hook during the next tax season.
Savings. If you negotiated a reduction in the amount owed on your debt, that can provide significant savings. Additionally, you may save on interest and any fees the past-due debt was incurring. Length of the payment plan. “Some plans are longer than others,” said Tayne. “We have clients who are making 60- or 80-month payments. That’s a long way out. So be prepared to stick to it.”
No legal action. By working with your creditors and coming to an agreement, you will prevent any further action, such as lawsuits or wage garnishment.

Alternatives to settling your debt

In addition to attempting to negotiate your bills directly, you have other options.

Debt consolidation.

If you qualify for a low interest rate, you could consolidate your debts by taking out a debt consolidation loan or transferring what you owe to a low-interest or no-interest credit card.

Request an interest rate reduction.

Some credit card companies will grant you a reduction in the interest rate depending on the circumstance. Some student loans will offer a rate reduction in exchange for setting up automatic payments.

Income-driven repayment plans for federal student loans.

If your loans are not in default, you may be able to get on an income-driven plan to make your student loans more manageable.

Borrow from your 401(k).

While not ideal, since you are using funds intended for retirement, borrowing from your 401(k) can be a viable way to take care of unmanageable debt, especially if it prevents legal action from your creditors.


It should be a last resort only after all your options are explored, but filing Chapter 7 bankruptcy, in which your assets are liquidated and most debts are forgiven, is also an option.

Negotiating debt settlement on your own

Even though settling your debt on your own will require a lot of time and effort on your part, it can provide very positive results. If you decide to pursue it, again, choose to approach it in an organized and systematic way.

Be realistic about your expected results and your ability to pay, and also be willing to walk away if you and your creditor cannot come to a workable agreement, which, according to Tayne, is not easy.

“That’s going to be very hard when you’re negotiating your own debt because you’re frightened and you’re not really sure, but push back if it doesn’t work for you. And be prepared to walk away.”


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