In my 14 years as a debt settlement professional, I’ve reviewed thousands upon thousands of debt settlement letters. Last year alone we had about 1,200 of them to review and approve on behalf of our clients. If there is one subject I know well, it’s how to document a settlement! There is nothing especially difficult about it, but I continue to be astonished at the amazing amount of bad information floating around on the Internet about this subject. In this blog post, I will set the record straight. If you want advice on how to protect yourself during a settlement transaction, you’ve come to the right place.
A word to the wise: You can either listen to someone like me, who reviews settlements on a DAILY basis, or make your decision based on some discussion forum where amateurs rule the day and the occasional “expert” weighs in with his or her opinion. I have seen cases where the exact opposite of the correct advice was given by so-called experts. So ignore my advice at your own risk!
1. NO LETTER, NO DEAL, NO EXCEPTIONS – EVER!
I have only one unbreakable rule for this game we call debt settlement. No letter, no deal, no exceptions, ever! In the course of negotiating settlements, you will sometimes run into lazy or misinformed debt collectors who refuse to grant a proper letter. They may use a variety of excuses, such as “There isn’t time and we need to get this handled today,” or my personal favorite: “This is a recorded line, sir. It’s all on tape, so you won’t need a letter from us.” This, quite frankly, is nonsense. If there were a problem later, how would you ever obtain a copy of that recording? You’d have to file a lawsuit against your creditor and obtain it through the discovery process. Good luck with that approach! It can be a real heartbreaker to think you have a good settlement, only to have the creditor take your lump-sum and treat it as a regular payment on the full balance and later deny ever having approved a settlement. Without a proper agreement letter, that is precisely the risk you take. The good news, however, is that getting a settlement letter is easy enough to accomplish.
The most important point to bear in mind here is that a settlement is a CHANGE IN CONTRACT between you and your creditor. The creditor’s own agreement language (i.e., the fine print on your credit card application) will always insist that any change to the agreement must be approved by the creditor and put in WRITING. So when necessary, you can apply some verbal ju-jitsu and use the creditor’s own policy to get what you need. When verbal agreement has been reached but the collector is balking at sending a letter, take this approach:
YOU: “If I accept this settlement it will modify the terms of my contractual agreement with XYZ Bank, correct?”
YOU: “Well, doesn’t the fine print in your original agreement state that any changes must be made in writing?”
REP: “Um, uh, let me get my supervisor for you.”
Escalate politely if necessary, but stick to your guns all the way up the food chain. If you don’t have a proper settlement letter, then it’s your word against theirs and you should not fund the settlement, period. By following this simple rule, you will save yourself a lot of grief.
2. FAX COPIES ARE FINE
The majority of settlement letters are forwarded via fax, and this is totally fine for the purpose of documenting the transaction. The creditor may or may not follow with a hard copy by post, but the fax copies have stood the test of time and consumers have been able to safely rely on this method for years. I cannot think of a single instance where a settlement was later disputed by a creditor when the only issue was documentation via facsimile rather than hard copy.
3. YOU WANT IT ON THEIR LETTERHEAD, NOT YOURS!
In the past decade-plus, I have overseen more than 10,000 settlements. In ALL cases without exception the agreement was documented on the LETTERHEAD of the CREDITOR, collection agency, or collection attorney representing said creditor, and NEVER on the consumer’s own letterhead. This is the correct method for the consumer handling their own negotiations, and it’s also the method employed by virtually all professional negotiation firms. Only inexperienced negotiators use the method of trying to get creditors to sign self-generated settlement letters.
There are books, e-books, websites, and a number of online “coaching” programs (aka inexperienced people trying unsuccessfully to copy what I do at ZipDebt) that claim you should mail a stream of offer letters to your creditors. This is a BAD IDEA! I don’t care if there are a few examples here and there where a creditor did agree to sign an offer letter as proposed by the client. The problem is that 99% of the time this method will FAIL. The reason is that all the major credit card banks have existing template language for documenting their settlements. The language has been pre-approved by the creditor’s legal staff. So you’re not going to get a manager at one of these banks to sign your stupid settlement letter and agree to your terms! And by insisting on doing it this way, you’ll be potentially costing yourself good settlements.
The correct technique is to verbally negotiate your settlement by telephone, and then to request a proper settlement letter be faxed to you before you present payment.
Aside from the reality that bank executives won’t sign off on your settlement letter, another reason I am opposed to working it the other way is the FOOTPRINT problem associated with any letter writing campaign. If you are using some type of “settlement system” that you purchased, think about how creditors will react when they start receiving the exact same letter over and over again from lots of different consumers. Their computer systems will catch on to this quickly, and before long, these letters will be classified as THIRD-PARTY generated. That is the kiss of death for a good settlement. Once the bank realizes you are using a system – a system that they are very much NOT in favor of! – then you can expect your account to be flagged for a different track of collections than the usual one. I’ve even seen this approach trigger early lawsuits or arbitration filings by the creditor.
Let me put it this way: Sending a series of pre-formatted settlement offer letters to your creditors is like repeatedly whacking a sleeping rhinoceros on the top of the head. Sooner or later the beast is going to wake up and have you for breakfast!
4. ANATOMY of a GOOD DEBT SETTLEMENT LETTER
Here is a simple checklist on what a proper debt settlement letter must include:
• The letter must be on the bank or agency’s letterhead
• The letter must be dated
• Your account number should be clearly identified (it’s fine if they only show the last 4 digits)
• The transaction must be described as a “settlement” or “settlement in full”
• Amount of settlement payment is stated correctly
• Payment due date(s) are stated clearly and correctly
• Individual payments sum correctly to the total amount to be paid on the settlement
Notice what this list does NOT include. It does not include a requirement for a physical signature. Surprised? Don’t be. About 99% of settlement letters don’t get physically signed. Trust me on this. It’s ok. Just like I have never seen a single settlement go sour because the creditor sent the letter by fax, I’ve also never seen a settlement go bad because the letter lacked a physical signature.
Guess what else is missing from this list? You’ll notice that there is nothing about how the settlement gets reported to your credit report. Why? Because it doesn’t matter. You can argue until you are blue in the face, and you’ll never get a creditor to alter the language by which it reports settlements, nor should you care in the first place. All settlements get reported as “settled for less than full balance,” or words to that effect, and they carry the same credit score code no matter what words are used. If it doesn’t get reported correctly, you can dispute the entry later on with the three major credit bureaus. But you can forget trying to have your creditor forgive 50% or more of your debt and also help you clean up your credit at the same time! It simply doesn’t work that way, and many an amateur has blown a perfectly good settlement over this point. Negotiate your settlements, THEN worry about your credit!
If you need professional advice on documenting your settlements, steer clear of the myths and misunderstandings you’ll find online, and give us a call at 866-515-2360. What we do is not based on theory, but rather on what has WORKED and has proven EFFECTIVE for thousands of clients in resolving problem debt.
NEW! DOCUMENT REVIEW SERVICE
Update: October 31, 2013
ZipDebt now offers document review for settlement letters and collection letters or notices. Have your document reviewed by Charles Phelan for a one-time low fee of $100. One business-day turnaround. Click here for more information or to order document review.
You indicate that all settlement letters should be in writing from the creditor snd faxed letters are ok. How about letters provided via promotions/programs via an online banking website? Is downloading and printing the letter at home valid as a form of the settlement in writing? Once a letter is received, is it possible to negotiate down the settlement amount that the bank has noted?
In reply to MJ, yes to both questions. An online letter that you print out from a bank’s website is just as good as a fax for documenting the settlement terms. However, the online offers are rarely the best that can be achieved. The technique that I teach involves negotiating by telephone, and you can use the standing offer as a “door opener” to discussing a better settlement. Of course, if you do work out a better deal than what was offered, you’ll need to obtain a fresh letter with the revised terms before presenting payment.
Great info Charles! Quick question. I received a letter stating the following… Bear in mind the letter meets as far as I can tell all the checklist items but my concern is if the actual wording is sound enough. “This letter confirms your agreement on 3/1/2016 to settle your account in the amount of $1551 on 3/31/2016.” Is that simple use of the word settle enough to protect me from further collection bearing in mind all the other checklist items are there? Cheers in advance!
Charles Phelan says
Ryan, yes, “settle” means settlement. The language does not have to be any more complicated than that.
I started with the program in July and 3 months later I have negotiated my first settlement for 30%. Without the continuous coaching I would have been literally a basket case trying to deal with all the psychological tactics that creditors and CA’s use. Charles, your communication and correspondence have been very valuable and reassuring when negotiating a deal. I knew exactly what I should be offering and countering for settlement and what to expect with that first deal. I was never second guessing myself when the opportunity came to finalize the settlement. So when that settlement letter came at the end of the month with literally hours to seal the deal Charles was there, on call, to double check if everything was in order. I have the peace of mind that I know I won’t get slammed with some kind of formality and having to deal with paying the remainder of the amount due. Thanks Charles for “showing me the light” and holding my hand through this process.
Mark, thanks for the comment. Congratulations on a great result with your first settlement! 🙂
Thank you for this fantastic post. I am working on settling some debts right now. I have three debts and two questions.
1. In the first, the letter includes all of the above, and I feel very confident about it.
2. For the second, I have a letter that includes all of the above EXCEPT LETTERHEAD… the letter was sent to me by normal mail, and the top of the letter includes my address and account number. The top of the letter just has a grey bar… no name of the bank, no logo, etc. Should I request the letter be sent on letterhead, or is this sufficient to hold up if needed?
3. For the third, I’ve negotiated a settlement over the phone, (or so I thought) but have been getting the runaround about a letter. I know you suggest not sending a “fill in this letter and send it back” option. What about sending them something in writing that states I am requesting a letter from them?
Again, thanks for an informative site.
TS, glad the post was helpful. On your second letter, it’s unusual for a bank to issue a letter without it being on a letterhead. If this came from a third-party agency, get them to fax you another copy, and then the fax cover sheet and transmission time-stamp should suffice to prove where it came from. On your third letter, there are any number of possibilities as to why they are balking at sending a letter, but the first and obvious thought is that you don’t really have a settlement and they are just trying to trick a payment from you. It’s just not necessary to send a letter saying you want a letter, etc. It’s very simple. No letter, no settlement, period! If you want some assistance on this, please email me privately at [email protected] and we can discuss further.