I am not a big fan of sending your creditors and debt collectors a written offer letter to settle your debt for less. In fact, negotiating through the mail is often counterproductive to reaching your goal.
Here are some reasons why sending a settlement offer letter can hurt you:
Your creditor’s and collector’s mailroom may not process and forward your offer letter correctly.
If your creditors, or the debt collection agency that has your account, has a mailroom practice of sending settlement offer letters to their internal legal team, this is typically the last department I want to deal with. I really only want to negotiate with the debt collector whose pay is partially based on how much debt they collect that month, and not someone who may not have that incentive, and whose job may also be geared toward pursuing collections in the court.
Some of the settlement offer letter examples I see used are not viewed as an offer at all.
The goal of sending a settlement offer letter is to pay less than what you owe and put that account in your rearview mirror. Some of us may approach this effort with a specific credit reporting outcome, such as getting the negative account deleted from your credit bureau reports as a condition of paying the settlement.
Below is an example letter of a settlement offer I have seen mailed out. It does not contain some of the problematic issues I discuss in this article, but is still something I would not use when trying to negotiate and settle a debt.
RE: Account # or Collection Agency File #
I am experiencing an ongoing financial hardship, and have only been able to keep up on necessary bills. I am not in great financial shape today, but have some resources that a family member has agreed to provide, in order to start digging my way out of debt.
I can offer you ______ dollars in order to completely settle and resolve the above referenced account. If this an agreeable settlement, please confirm your acceptance via mail to the above address.
I also see letters that offer to pay a settlement, but only if the creditor or debt collector can prove the debt is owed and valid.
Two big issues with some of the conditions I see in these letters are:
- Most creditors, especially banks, are not going to agree to “pay-for-delete.”
- You should not be trying to settle a debt that is not valid to begin with.
Putting these types of conditions in your settlement letter is just more reason for it to be flagged for legal review.
And asking a creditor to validate a debt before you agree to pay is something you do when you are trying not to pay, or need clarity on whether to pay.
You can be left hanging.
Some creditors will be non-responsive to your mailed offer, causing you to wait too long and miss an opportunity to have settled for a better savings than you would have after they send your account to a collection agency or collection attorney.
Most banks entertain their best settlement offers right before they charge off your credit card (when you have gone 180 days late). This can mean the best time to mail an offer is at 150 days. That leaves you with only one month to hear back from them. Now, because some banks simply ignore written settlement offers, and there is only a month left to negotiate a settlement you can agree to and pay, you will lose the opportunity to prevent charge off and get a better settlement deal now than you may be able to get later – and prevent your account from being placed with a collection law firm by creditors that do that right away.
You can lose the opportunity to quickly make multiple counter offers, allowing you to reach a better settlement outcome.
Mail takes time. Perhaps even weeks. What if you are dealing with a contingency debt collector, the most common type of debt collection agency? This type of collector only gets paid if they get you to pay.
The bank you have your credit card with may only have placed your account with the collection agency for a limited time.
If you send your first offer to settle through the mail, and they send you a letter back with a counteroffer, you may have little to no time to mail back your own counteroffer, let alone another counter to their second counteroffer, before the account is pulled and placed elsewhere (perhaps with an attorney).
What if you’re dealing with an aggressive debt buyer who views your settlement offer letter as a sign of weakness that prompts them to place your account for legal collection?
Many companies that buy the legal rights to collect your debt are highly sophisticated at collections. Some of that sophistication is to use collectibility scoring of those they should target for collection through the courts.
There are many things about each of us that would cause our “collectibility” score to increase.
One of the most basic scoring factors for any debt collector is when we show the willingness and/or ability to pay.
By sending in your settlement offer letter, you exhibit willingness.
And while your offer may be really low, it still shows at least some ability (cash available now, or over a period of time). Some debt buyers can view this as an opportunity to push the ability-to-pay needle harder by taking you to court to see how much more “able to pay” you really are.
In some states, a written offer to pay can reset the statute of limitations to legitimately sue you in court to collect.
Most of us want to avoid the stress of being sued for collection. Helping people avoid the courts, whenever possible, is part of any sound debt settlement strategy. And it is not just stress; it’s also costly.
Settling in court is very common, but the deals can sometimes be twice as high than if you had settled prior to your account getting to that point. This means using strategies that can cause you to reach that point faster, or at all, are ill-advised.
What you do want in writing: The settlement agreement
Getting your settlement agreement in writing is critical. You absolutely want a letter that outlines the creditor, collection agency or law firm is taking less than what you owe. You want it to clearly identify you, and the outline of the deal being made. And you want it on their letterhead, not yours. But I highly recommend you negotiate the deal over the phone, for all of the above reasons and more, before you get to the point of having them send you the settlement agreement.
How Resolve can help
If you’re dealing with debt and not sure what to do, we’re here to help. Become a Resolve member and we’ll contact your creditors to get you the best offers for your financial situation. Our debt experts will answer your questions and guide you along the way. And our platform offers powerful budgeting tools, credit score insights and more. Join today.