How To Negotiate a Debt Settlement

You can negotiate debt settlement by yourself or with a debt settlement firm. If you decide to settle your debt yourself, make sure you know how much you owe and make an offer that you can afford. You should also save up money to pay the settlement and receive the agreement in writing.

Jennifer Schell headshot
  • Written By
    Jennifer Schell

    Jennifer Schell

    Financial Writer

    Jennifer Schell is a professional writer focused on demystifying annuities and other financial topics including banking, financial advising and insurance. She is proud to be a member of the National Association for Fixed Annuities (NAFA) as well as the National Association of Insurance and Financial Advisors (NAIFA).

    Read More
  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

    Read More
  • Updated: May 4, 2023
  • 6 min read time
  • This page features 7 Cited Research Articles
Fact Checked
Fact Checked content is meticulously reviewed to ensure it meets our high standards for readability, accuracy, fairness and transparency. articles are spellchecked, grammatically correct and typo-free. editors may revise content for clarity, logic, flow and meaning. only uses credible sources of information.

This includes reputable industry sources, select financial publications, credible nonprofits, official government reports, court records and interviews with qualified experts.

Cite Us
How to Cite's Article

APA Schell, J. (2023, May 4). How To Negotiate a Debt Settlement. Retrieved June 7, 2023, from

MLA Schell, Jennifer. "How To Negotiate a Debt Settlement.", 4 May 2023,

Chicago Schell, Jennifer. "How To Negotiate a Debt Settlement." Last modified May 4, 2023.

Why Trust
Why You Can Trust
Content created by and sponsored by our affiliates. has been providing consumers with the tools and knowledge needed to confidently make financial decisions since 2013.

We accept limited advertising on our site to help fund our work, including the use of affiliate links. We may earn a commission when you click on the links at no additional cost to you.

The content and tools created by adhere to strict editorial guidelines to ensure quality and transparency.

Key Takeaways

  • You can settle debts on your own or with the help of a debt settlement company.
  • Debt settlement firms can be costly, but they can often save their clients more money than they charge in fees.
  • If you decide to settle your debts by yourself, do your research and make an initial offer that’s less than half of what you owe.
  • Always get debt settlement agreements in writing to avoid any disputes later.

DIY Debt Settlement vs. Debt Settlement Companies

Most consumers who are interested in debt settlement choose to hire a debt settlement company to negotiate on their behalf. However, negotiating directly with your creditors rather than via a settlement firm is also an option. 

Should you negotiate a settlement yourself or hire a settlement company? “It really depends,” says Gerri Detweiler, a credit and debt relief educator. “I’ve seen people be very successful negotiating on their own, and then some people just end up making really bad decisions because they just don’t know much… There’s a lot of variables. It’s a bit of an art as well as a science.”

Before you decide how you should pursue this debt relief method, you should consider the costs of both debt settlement strategies and how successful they are likely to be.


Debt settlement involves paying your creditors a lump sum settlement that’s less than you owe. When negotiating your settlement, you’ll stop making payments on your debt and instead will put the money towards saving up for the settlement.

The amount of money you’ll need to settle depends on several factors; how much you owe, how old the debt is and even your current income can play into your settlement amount.

If you’re negotiating the settlement yourself, you won’t have to pay fees to a settlement firm or attorney to represent you. While do-it-yourself debt settlement is the more cost-effective option, it may not be the most successful.

Hiring a debt settlement firm can be costly, so it’s worth shopping around to find a company with reasonable rates. “I’m not against hiring a debt settlement firm,” Detweiler says, “but what I am against is firms that charge so much money that you can’t save up enough money to settle your debt.”

Debt settlement companies usually charge fees as a percentage of how much money you’ll be enrolling in their debt settlement program. You can expect to pay between 15% and 25% of your enrolled debt in fees when you hire a settlement firm.

No matter how you go about settling your debt, it’s important to know that any amount of debt that gets forgiven is considered taxable income. You’ll have to report the forgiven debt on your tax return and will likely pay taxes on it, adding to the cost of settling that debt.

Success Rates

The success rate of negotiating a debt settlement can be measured by what percentage of the debt makes up the final settlement. The lower the percentage, the more successful the settlement.

According to the National Foundation for Credit Counseling, consumers negotiating with creditors can expect to reach a settlement of 40% to 50% of their outstanding debt. As mentioned, the settlement amount you’ll be able to negotiate varies widely based on your personal financial situation.

Debt settlement firms are experienced professionals who specialize in negotiating with creditors on behalf of their clients. On average, debt settlement companies can settle their clients’ debts for 48% of what the client owes, on par with what the average person can expect to settle for themselves.

Still, some consumers prefer to have the expertise of a professional debt settlement firm to guide them, and many say they still save money on their debts despite the firm’s fees. Debt settlement companies save their clients an average of $2.64 per dollar they pay in fees.

Steps for Negotiating a Debt Settlement

If you do decide you want to pursue debt settlement on your own, here are the steps to negotiating a settlement with a creditor or debt collector.

Step One: Do Your Research

First, assess the situation and find out how much you owe. You should also find out what policies your creditor or debt collector has surrounding debt settlement, and if they have a dedicated “financial relief” department you can contact.

If you’ve received a collection notice from an independent debt collector, find out who the original creditor is, and if you don’t recognize it, what the original debt was for. You may also be able to dispute the debt if it’s in collections.

Step Two: Save Up Money

While you’re preparing to negotiate your settlement, you should stop making payments toward your unsecured debts. Instead, put the money aside as savings towards the settlement you’ll pay once an agreement is reached.

Your creditor or debt collector may allow you to set up a settlement payment plan instead of paying a lump sum. This is a valid approach, but you should think carefully before choosing this option. The terms of this payment plan might stipulate that missing a single payment terminates the settlement agreement.

Step Three: Prepare Your Offer

You should come up with a settlement offer before you enter negotiations with your creditor. As mentioned, you can expect to settle for between 40% and 50% of your original debt. Your initial settlement offer should be considerably lower than that percentage, to allow room for negotiations.

When preparing your settlement offer, you should be honest with yourself about how much you can afford to pay. You may find it helpful to draw up a budget and compare your monthly income and expenses to figure out how much you’re able to pay toward settling your debt. 

You Should Know

If your debt is more than a few years old, you should speak with an attorney about your state’s statute of limitations on debt.

Step Four: Negotiate With Your Creditor

When you’re ready to negotiate, give your creditor or debt collector a call and explain your financial situation. There is no guarantee that your creditor will agree to a settlement offer, but you may have a better chance if your debt has already gone to collections. 

If you are able to reach an agreement with your creditor, ask them to put the deal in writing. You’ll want to have proof of the arrangement that both parties agreed to if any issues arise down the road. Make sure you get all the details of the settlement, including any agreements to stop collection efforts or forgive the remaining debt. Do not make any payments until you have the settlement in writing.

Step Five: Pay Your Settlement

The final step towards settling your debt is to pay the settlement amount. Whether you’ve agreed to a lump sum or a payment plan, make sure you pay promptly and receive confirmation that your creditor has received the funds. Once you’ve paid the settlement in full, check your credit report regularly to see if the settled debt is reported accurately.

Let’s Talk About Your Financial Goals.

Take our free 3-minute quiz to match with a financial advisor instantly. Recommendations tailored to your goals.

Frequently Asked Questions About Negotiating Debt

What percentage should you offer to settle debt?

Debts settle for an average of 40% to 50% of the amount owed, but your initial offer should be lower than that to leave room for negotiation. Never offer more than you can afford to pay.

Is it better to settle or pay in full?

Debt settlement can negatively affect your credit score, so it’s usually best to pay your debts in full if you’re able to.

Can you negotiate with debt collectors?

You can negotiate with debt collectors, and you may have a better chance of reaching a settlement after your debt has gone to collections instead of negotiating with your original creditor.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: May 4, 2023

7 Cited Research Articles writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. American Fair Credit Council. (n.d.). Facts About Debt Settlement. Retrieved from
  2. (n.d.). Eight Facts About Debt Settlement You Need To Consider. Retrieved from
  3. Consumer Financial Protection Bureau. (2019, March 29). What Is the Best Way To Negotiate a Settlement With a Debt Collector? Retrieved from
  4. Consumer Financial Protection Bureau. (2017, January 25). What Is a Statute of Limitations on a Debt? Retrieved from
  5. Detweiler, G. (2022, August 19). Zoom interview with
  6. McClary, B. (2020, June 23). How To Negotiate Debt Settlement on Your Own and the Impact to Your Credit Score. Retrieved from
  7. National Foundation for Credit Counseling. (n.d.). Does Debt Settlement Make Sense for You? Retrieved from