Last Updated: April 1, 2024
Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.

Facing the stress of mounting debt can feel like a never-ending cycle of late notices and relentless calls from creditors. Yet, what if these challenges were actually opportunities in disguise?
Opportunities to take control and significantly reduce what you owe. Negotiating your own debt settlement isn’t just a fantasy, it's a practical step towards financial relief.
This guide clarifies the process, equipping you with the knowledge and tactics to turn your debt struggles into a journey towards financial freedom.
Want to skip the article and speak directly to a debt specialist? Click here for a free consultation.
Debt settlement is a process where you negotiate settlements of either a decrease in the total amount owed, a decrease in fees and interest charges, or both. Creditors want to be paid, and sometimes accepting fewer means that they will be paid instead of losing the debt all together.
The process is fairly simple. However, you will most likely need an absorbent amount of time dedicated to waiting on hold just to get a hold of these companies. First, contact the creditor, explain your financial hardship and situation, and offer to settle. The company may accept your offer or may offer a different amount. If everyone is happy with the offer, GET IT IN WRITING.
If you are considering bankruptcy to get out of delinquent debt, a do-it-yourself settlement may keep you from the stigma and expense of bankruptcy.
If creditors understand your desperation, they may work with you.
There are five factors in understanding your financial situation. These will help you understand who may settle and for how much.
Look at the debt age. Most states have statutes of limitation that define how long a debt can be collected. This depends on where you acquired the debt, the state you live in, and the type of debt. A financial advisor may be able to explain these statutes.
In general, debt "ages out" in about 6 years, but your state may differ.
If it has aged out and you have not made any offers to pay or payments, you do not owe the debt.
If the debt is nearing the statute of limitations, you are in a stronger negotiation period. The creditor knows you can wait it out and pay nothing. The credit report damage is already done, and aging out. Negotiating really shouldn't make your credit score any worse.
Next, determine the type of debt. The two basic categories are secured and unsecured. The difference is that secured debt has an asset backing it - for instance, a mortgage or a car loan is secured debt. A creditor can take the house or car in exchange for the unpaid debt. A creditor with a secured debt is much less willing to settle.
Unsecured debt includes credit card debt, medical bills, utilities, and student loans. Creditors of unsecured debt will be more willing to settle.
The amount owed will also determine if the company will settle. The more you owe, the more willing a company may be to settle.
Most professional debt settlement companies will not take on debt under $500 as the effort is not worth the reduction. If you are doing your own debt settlement, it is worth trying to settle a small debt.
Interest rates vary based on your credit score and type of loan. Lowering the interest rate on a small loan may be a better option than a decreased outstanding balance.
Focus on your highest-interest debt to decrease the owed amount and the interest rate. This can greatly affect how quickly you can pay off your debt.
The final factor is who owns the debt. This can be the original creditor, their in-house collection agency, or a third-party debt collector.
Settle with original creditors first. You may be more successful if you can get the debt dealt with before it goes to collections. Generally, creditors do not settle on less than 90 days old debt.
Attempt third-party debt collectors next. They bought your debt for pennies and may be far more willing to settle. Finally, work with the in-house collection agency.
You do not need to do one at a time, just need to keep good notes on each attempt to settle.
As a consumer, you have certain rights and responsibilities. Understanding these will help you work with a debt buyer more successfully and even decide if you want to try settling debt.
To this end, do not ignore your mail or phone calls. This issue will not go away.
The federal Fair Debt Collection Practices Act (FDCPA) defines what debt collectors can do and how they can behave. Debt collectors generally have a bad reputation for good reason, so this act was put in place to protect consumers. The basic premise is that you cannot be harassed, bullied, or abused.
If you think a debt collector violates the FDCPA, check out this article and contact a lawyer.
Some states have expanded protection acts that cover original creditor behaviors, as the FDCPA only covers third-party debt collectors.
You have the responsibility to pay your debts. If this is not possible and you use debt settlement, you now have a responsibility to report the settlement to the IRS.
The IRS considers any forgiven debt over $600 to be income and must be reported as income. You will receive Form 1099-C. For more on this form, check out this blog.
Before you call to inquire about a debt settlement, get your facts and figures straight. Write down the following information:
Next, look at your finances and your personality. Determine the following:
Finally, you need to understand what you will offer the creditor. Consider the following:
Your next step is to contact the creditor. It may take more than one phone call to settle. Keep good notes and get a written agreement.
We will describe professional negotiation tips next.
Before you pursue debt settlement, understand the pros and cons.
Pros
Cons
There are some alternatives to debt settlement.
Debt consolidation involves finding a low-interest personal loan to pay off all or most of your debts. You then focus on paying off the loan. This works if you can get a loan with a lower interest rate than your existing debt. This can result in money saved in interest charges.
A nonprofit credit counseling agency offers education on how to manage finances, set up a budget, and other important financial concepts. These often involve a debt management plan to manage debt and save money. It may include negotiating a lower interest rate or even decreased debt, a debt consolidation loan, a budget, different monthly payment dates, and other techniques.
This legal option is a final option because it is expensive, time-consuming, and carries a lot of stigmas. If you are considering bankruptcy, you will need a qualified attorney to help guide you. Depending on which bankruptcy you qualify for, most of your debts can be erased or the court will set up a debt management plan for you to complete.
Bankruptcy does not stay on your credit report for seven years - it stays for up to ten years!
Before undertaking debt settlement negotiations, decide if you are willing to have more credit damage - most people who consider debt settlement already have damaged credit. Once your debt is settled, you should see your credit score improve.
You must also understand how debt settlement affects income taxes and other tax implications.
If debt settlement sounds like your best bet to get out of debt, but the debt settlement negotiations are beyond your skills, time, or comfort levels, you may be considering a professional debt settlement company. Here is what you should know.
A professional debt settlement company like Pacific Debt Relief will negotiate your debt on your behalf. The short version is that you have enrolled debt with the company. You then make affordable monthly payments into an escrowed account.
As you build up your savings, the debt settlement company negotiates a settlement. When each debt is settled, the debt is paid off. It can take 12 to 48 months to settle all debts.
The advantages of using a debt settlement company are professional negotiators and knowledge of willingness to settle. Not to mention, Pacific Debt Relief has existing relationships with most creditors and debt collectors.
Before you choose a debt settlement company, do your due diligence. Look for the following accreditations:
Also, read reviews by real clients and professionals like US News and World Report. Pacific Debt Relief has been named one of the best debt relief companies by US News and World Report.
Pacific Debt Relief offers a FREE consultation with no obligation
Most creditors may agree to a debt settlement offer of 40% to 50% of your debt.
DIY debt settlement depends on your personality, confidence, availability, and stamina. Debt settlement usually requires an absorbent amount of time and effort. Typically, using a debt relief company is a much better option because they have relationships already in place with creditors and debt collection companies.
You must pay the full balance if the creditor or collections company refuses to negotiate a debt settlement.
A professional debt settlement company usually settles in 24 to 48 months.
If they are open to a settlement, most creditors may agree to settle for 40% to 50% of your debt.
So, should you negotiate your own debt settlement? In theory, yes. In practice… maybe. If you’re struggling with a lot of debt and don’t know where to start, we recommend getting a free consultation from our team of experts.
We’ll help you understand all your options and find the best solution for your unique financial situation. Get your FREE consultation today!
*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.
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*Clients who make all their monthly program deposits pay approximately 50% of their enrolled balance before fees, or 65% to 85% including fees, over 24 to 48 months (some programs lengths can go higher). Not all clients are able to complete our program for various reasons, including their ability to save sufficient funds. Our estimates are based on prior results, which will vary depending on your specific circumstances. We do not guarantee that your debts will be resolved for a specific amount or percentage or within a specific period of time. We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Pacific Debt is not a credit repair firm nor do we offer credit repair services. Our service is not available in all states and our fees may vary from state to state. Please contact a tax professional to discuss potential tax consequences of less than full balance debt resolution. Read and understand all program materials prior to enrollment. The use of debt settlement services will likely adversely affect your creditworthiness, may result in you being subject to collections or being sued by creditors or collectors and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest. However, negotiated settlements we obtain on your behalf resolve the entire account, including all accrued fees and interest. C.P.D. Reg. No. T.S. 12-03825.