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Tuesday, February 21, 2012

Significance of a debt settlement letter

After the recent colossal economic crisis, millions of Americans are drowning under the sea of outstanding debt. According to the latest statistics from the Federal Reserve, the total amount of consumer debt in the U.S. stands at nearly $2.4 trillion, which is expected to be worked out nearly $7,800 for every man, woman, and child. These staggering numbers of debt can be a major obstacle in people’s life and can destroy their credit score. So it is advisable to pay off the debt through debt settlement where you have to negotiate with creditors in order to reduce the pay-off amount by writing a debt settlement letter to them.

What is a debt settlement letter?

A Debt settlement letter is a letter written by a person who owes the debt, known as debtor or borrower, to the person to whom it is owed, known as lender or creditor. The primary goal of writing a debt settlement letter is to negotiate with creditors to reduce the pay-off amount or the interest rate or both. Debt settlement letter is also known as debt negotiation or debt arbitration letter.

Terms of a debt settlement letter:

A debt settlement letter involves some revised terms and conditions as agreed by both the borrower as well as the creditor. An important factor associated with the process of settlement is that both debtors and creditors agree to sacrifice some amount of money.

There are certain terms and conditions negotiated in a debt settlement letter, including an increase or decrease of interest rate and lengthened or shortened the repayment period.

A few important tips to write a settlement letter:

  • Before you attempt to settle the debt with creditors or write a settlement letter, find out whether or not you indeed owe the debt. If you are sure that you do not owe the debt, request the creditors to validate if the debt is actually yours.
  • When you are writing a settlement letter to creditors, ask them to remove the inaccurate information from the report. If you intend to pay off the debt, the creditors will be willing to help you by removing the erroneous information beforehand.
  • Be firm in your letter. Tell the creditors that you are willing to repay the debt provided they settle for a reduced amount. If bankruptcy is an option that you are thinking about, let your creditors know. Knowing this they might feel encourage working with you so that they do not lose their client completely.
  • Then decide upon the amount that is feasible for you to pay. Mention the amount in the letter that you can pay over time or in one go. Get the letter signed by the creditors, which will act as a measurement of protection for you if your creditors decide to collect the remainder of the debt in future.
  • Ask your creditors to give you a copy of settlement letter where it should be noted that the debt has been paid in full according to the terms of the agreement. Then send it to the credit bureau to have your records clear from negative information.

In conclusion, a debt settlement letter is a significant thing in the settlement process. So understand the value of a settlement letter and know how to write it.

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