How to Negotiate Debt Settlement on Your Own: A DIY Guide

Debt settlement means negotiating with your creditors to pay off your debt for less than you owe. Usually, you offer them a lump sum payment, but sometimes creditors will accept a series of payments. 

While many consumers use a professional debt relief company for settling their debts, it is possible to DIY it, and doing so could save you money — at least if you're successful. 

Here's what you need to know about settling debt and how to negotiate a debt settlement on your own.

Can You Negotiate Your Credit Card Debt?

You can negotiate a debt settlement on your own, and you don’t have to use or pay a professional to do it. If you’re successful, it could save you a significant amount of money on fees (debt settlement fees typically range from 15 to 25% of your enrolled debt).

Just be warned: It will take a good amount of time and effort to settle your debts, and there’s no guarantee it will work. Not all creditors are open to negotiation, and even then, you’ll typically need to stop making monthly payments while you try to settle. This approach could hurt your credit in the meantime.

If you’re considering the DIY route, study how to negotiate debt settlement first and follow the steps outlined below.

How to Negotiate Debt Settlement on Your Own in 7 Steps

Before negotiating a debt settlement, make sure it’s the best option. If you’re struggling to get out from under your monthly payments, there are many other options you can explore that might be more successful. For example, you might try credit counseling. A credit counselor can offer budgeting guidance or even get you on a debt management plan (DMP) that can help you pay off your debts over the course of a few years.

You’ll also want to make sure you’re a good candidate for debt settlement. Generally speaking, you will need to be at least a few months behind on payments before a creditor will consider settling. Even then, you’ll typically need a large lump sum to do it, so make sure you have the savings — or a plan to build them up — to make that happen.

From there, you’ll need to:

Step 1: Determine How Much You’ll Offer

Before you contact your creditor, you need to determine your offer. According to a report from the American Association for Debt Resolution, creditors on average settle for about 50% of the total balance due. However, no creditor is obligated to negotiate with you and no result can be guaranteed. 

In general, the amount accepted depends on several factors. One of the most important is the age of the debt. If the original creditor is on the hook for the entire balance and has not yet written it off or sent it out for collection, it will likely want more. On the other hand, a five-year-old account purchased by a debt buyer for pennies on the dollar has a lot more wiggle room. So, look at your outstanding balance, the owner of the debt, and the age of the account. Then pick a starting point for negotiations.  

If you don’t already have access to that amount, determine how long it will take you to get there. You shouldn’t call your creditor until you’re ready to make an offer and settle up immediately. 

Also, keep in mind that you may have to pay taxes on the amount forgiven. The IRS has a worksheet to see if you will. The general rule is that if your debts exceed your assets, you are technically “insolvent.” And insolvent people don’t have to pay taxes on forgiven debt. Talk to a tax professional if you need help estimating how much you may owe come tax season.

Step 2: Expect to suffer

While you are saving your lump sum and not paying your creditor, expect contact. Perhaps a lot of contact. You may be able to limit or eliminate calls, letters and texts from debt buyers or collection agencies by asking them to stop contacting you. Federal debt collection laws offer some protection from unwanted “reminders” from debt collectors. However, federal law doesn’t cover original creditors like your credit card company or bank. 

Even if you can stop all contact, you might not wish to. Your creditor may choose to take you to court if it can’t get in touch with you. The pain of missing payments and being subject to collection calls and letters is a big reason to save your lump sum as quickly as possible. 

Step 3: Call your creditors

Once you know how much you can offer, get ready to call your creditor and open negotiations. You may want to jot down a few talking points — like any extenuating circumstances or financial hardships you’re having (it could make them more sympathetic to your cause).

When you call, speak confidently. Tell the representative you are unable to make your monthly payments and say you are willing to settle your balance with a one-time payment of X as soon as possible. If you know you can only offer a certain amount, try offering a bit under this number to start. Then, if the creditor comes back with a counteroffer, it’s more likely to be in your price range.

If you’re unsuccessful, ask to speak to a manager or a representative in another department and try again. You may also want to try on another day to fully exhaust your options. 

Step 4: Get set for counteroffers and pushback

Negotiating is a back-and-forth process—it's common for creditors to counter your initial offer. When you receive a counteroffer, take a moment to decide whether you’re able to pay that amount. If the counteroffer is too high, you can politely turn it down. Then, repeat your original offer or propose a slightly higher amount that’s manageable for you.

Here’s how to handle counteroffers effectively:

• Stay calm and professional. Negotiations can be tense, and remaining composed shows you’re serious and committed to resolving the issue.

• Repeat your position. Politely remind the creditor of your situation. Explain why your offer is fair.

• Know when to compromise. If the creditor's counteroffer is close to your limit, consider accepting it. That may help move the process forward.

Remember, it’s a negotiation and both parties want a resolution. So, be patient and persistent in finding a deal that works for you.

Step 5: What to say (and what not to say) to creditors

Effective communication is key when negotiating your debt. The right words could help ‌bring success, while the wrong ones could derail negotiations.

What to say:

• Be honest but brief. Explain your financial troubles and emphasize your desire to resolve the debt.

• Show you're willing to settle. Let the creditor know you want to pay the debt. A settlement is in their best interest.

• Propose a specific amount. Instead of asking what they’ll accept, confidently offer a specific settlement.

What not to say:

• Avoid emotional appeals. Stick to the facts. Don't get too emotional, as it could weaken your position.

• Don't show all your cards at once. There’s no need to mention any extra funds or assets, and doing so might lead the creditor to demand more.

• Avoid making threats. Threatening language could harm the negotiation process. Stay focused on finding a mutually beneficial solution.

Step 6: Finalize your settlement terms

If your creditor agrees to settle, get the terms in writing before making any payments. The written agreement should specify how much and in what form you will pay, when you’ll pay, and what the creditor will do in return — like reporting your account balance as zero or even noting your balance as “paid as agreed” on your credit report.

Only once you have an acceptable written and signed agreement should you send your payment. When you do, be sure to get a receipt of the transaction and an account statement showing your balance as paid. Follow up in a month or so to make sure that your creditor kept its end of the bargain.

Step 7: Follow through on payments

After reaching a settlement, make the payments you agreed on so you avoid ending up with more debt and penalties. A missed payment might even void the agreement. 

Here’s how to stay on track:

• Set up automatic payments. Set up automatic transfers from your bank account to ensure timely payments.

• Keep detailed records. Save copies of your agreement and proof of each payment. This will help resolve any discrepancies later on.

• Communicate with your creditor. If you face an unexpected financial issue, contact your creditor and discuss possible solutions. It’s better to be proactive than to miss a payment without explanation.

Paying your debts will fulfill your part of the deal. It will also get you closer to a debt-free future.

DIY Debt Negotiation vs. a Professional Company

The main difference between negotiating your own settlement versus using a pro is the amount of time and effort it takes. With a professional, they’ll do all the calling, haggling, and negotiating on your behalf. When you take a DIY route, it requires more work on your part. You’ll need to determine how much to offer, and you’ll have to do the direct negotiations with your creditor (or creditors) too. 

Professional debt settlement companies may have another advantage – contacts with major creditors and the ability to communicate with them more easily. 

There are also fees to consider. No one works for free, and a professional company charges about 15% to 25% of your enrolled loan balance for its services – but only if it negotiates a settlement that you agree to, and you only owe fees when your debt is settled. While DIYing won’t come with these fees, it will mean time spent away from other priorities (or possibly even work). 

Pros and Cons of a DIY Debt Settlement Negotiation

Learning how to negotiate debt settlement on your own could save you money. Professional debt settlement comes with fees if the settlement is successful. According to the AFCC report, the typical debt settlement client pays around $4,700 in fees. 

The downside is your chances of success may be lower. Debt settlement companies are skilled in negotiating settlements, and their preexisting relationships with creditors may help your case. The AFFC shows about 70% of professional debt settlement clients successfully settle at least one account. More than half settle at least two accounts.

Debt Negotiation Tips from Freedom Debt Relief

Preparation is key if you plan to negotiate a debt settlement with your creditors on your own. 

To help your chances of success, you can:

1. Map out a script. Write down what you plan to say, and rehearse it with a friend or loved one.

2. Know the numbers. Establish a hard maximum for your settlement amount. This will help you when negotiating on the fly.

3. Be confident. Don’t waver, and keep repeating that you are experiencing financial hardship and are willing to negotiate a final settlement.

4. Talk to several people. If the first representative you speak to isn’t helpful, ask to talk to a manager. You can also call back on a different day or at a different time to try and reach new personnel.

5. Start low: Low-balling your first offer increases the chance any counter offer will still be within budget.

6. Manage your expectations. Understand it’s not always possible and that not all creditors are willing to settle. 

If the above tactics don’t work, you might consider bringing in a pro who knows how to negotiate debt settlement more successfully.