Credit Card Debt Settlement Letter - How to Write Them

A credit card debt settlement letter can be a worthwhile option to pursue in the quest to eliminate debt. But what exactly is this type letter and will it be useful for you?

For starters, let's discuss what it's all about.  As it sounds, it is essentially just a letter that is mailed to your creditor (whether it is a bank or credit card company) requesting that they lower the amount of outstanding debt that you (the debtor) owe.  Typically, the debtor will make an offer that they will be willing to pay in full (although it is not unheard of to settle on a monthly payment plan) which is lower than the actual outstanding amount they owe.  Often times, the creditor will then make a counter offer somewhere in between the original debt settlement amount and the actual amount owed.  Once an agreement is reached, the debtor then pays the negotiated amount in the time frame agreed upon.

This may sound too good to be true, so how does it work?  Lending institutions such as banks and credit card companies exist for one purpose which is to make money.  When they receive credit card debt settlement letters, they see it as an opportunity to collect money which otherwise they may never see.  For example, if the debtor goes into bankruptcy, the card company will probably never be able to collect the money they are owed.  By responding to the request in the letter letter, they are essentially a negotiating with the debtor.  After all, some money is better than no money at all in their eyes.

There are some caveats to writing this letter that should be mentioned here as well.  Many people in significant debt opt to communicate through an attorney rather than directly contacting a creditor.  The benefits to this, despite the obvious fees involved, are that the attorneys are very familiar with all of the legal and tax implications associated with debt settlement.  For instance, they know that difference between the original amount owed and the amount settled upon is considered taxable income by the IRS.  Anyone considering sending a letter would be wise to at least consider consulting with a debt or tax attorney first.

Finally, there are those who would make the case for calling your creditor rather than writing.  Calling allows you to make direct contact with the company, with no worries about the letter being lost or placed in the trash can.  Whatever you decide, be sure to research all of your options prior to drafting and sending a credit card debt settlement letter.

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