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Debt can be overwhelming. Especially if it has a compounding interest rate that causes your principal balance to continue to grow, like credit card debt. If you get to a point where you can no longer manage your debt payments, one path forward could be DIY debt settlement. 

What is a debt settlement?

Debt settlement is when a creditor accepts less than what you owe and clears your debt. Usually, it’s an extreme step and something to pursue when you’re considering bankruptcy. 

In debt settlement, you must prove to your creditors that you’re unable to fully pay your debts. The creditor isn’t under any legal obligation to accept less than what you owe. Rather, you must show that it’s in their best interest to accept less. If some of your debt isn’t cleared and you declare bankruptcy, the creditor, especially creditors of unsecured debt like personal loans and credit cards, could receive nothing. 

In both Chapter 7 and Chapter 13 bankruptcy, there is a hierarchy of debt, with unsecured loans coming in last place.

If you’re interested in settling your debt, you have the option to do it yourself.

Struggling with debt? How credit counseling can help

DIY debt settlement vs. using a debt settlement company

Debt settlement is best done directly by talking with your creditors yourself. You would typically offer the creditor a small lump payment. When you do this, the creditor may negotiate with you and ask for a higher amount. Another less-desirable option is to work with a debt settlement company who negotiates with your creditors on your behalf. 

The main benefits of DIY debt settlement are a shorter turnaround and saving money. “You don’t have to rely on a debt settlement company’s time schedule and fees for negotiating,” says Noah Schwab, CFP and advisor for Stewardship Concepts Financial Services (CFPB).

Also called “debt relief companies” or “debt adjusters,” debt settlement companies are notorious for doing more harm than good. 

The states that debt settlement companies can leave you deeper in debt than when you started. This is because many debt settlement companies have you stop paying your debts in order to negotiate with creditors, which can lead to an increase in debt. Also, the huge fees they typically charge can wipe out any savings they might earn for you.  

“We’ve never encountered a for-profit company which could do more than the individual her or himself,” says Warren Ward, founder of WWA Planning & Investments. “There is no point in paying a fee for something that can be taken care of personally.”

Many creditors refuse to work with debt settlement companies at all.

Steps to negotiate your debt

If you decide to pursue debt settlement on your own, these are the steps you’ll generally take: 

1. Determine that debt settlement is right for you

Firstly, verify the debt is actually correct. Fraud, identity theft and mistakes happen. 

From there, consider how serious the situation is. Because debt settlement is one step short of bankruptcy, you typically have to show that you’re on the verge of filing by having accounts that are several months overdue for payment. 

If you decide to do it yourself, your debts typically have to be 90 days delinquent for a creditor to accept less than the full repayment amount.

If your accounts aren’t already in dire straits, try to avoid that situation. If you stop making payments, the creditor will add fees and interest, increasing what you owe and harming your credit score.

Here are other options that you could do instead of or even in addition to debt settlement:

2. Plan and practice your negotiations  

Before you attempt a debt settlement, you need to know what you’re asking for. 

Will you ask the creditor to forgive half of your debt? What about a third? You need to have enough money in a lump sum to be able to entice them to settle.

“Start with lowballing,” Schwab says. “If you can only pay 60%, start by offering 30% so you give yourself enough room by meeting in the middle during negotiations.”

As you negotiate you want to keep in mind what it will look like on your credit report. Settled accounts have the ability to stay on your credit report for up to seven years. After debt settlement, your credit report will have a status of “settled.” This could prevent you from obtaining credit moving forward.  

According to Schwab, you will negotiate how much you will repay and how it will show up on your credit report. “Keep in mind you may owe taxes on the amount forgiven.” Schwab advises. 

3. Persistently contact your creditors

If your first attempt fails, don’t give up. You can end a conversation and call back if you want to talk to a new representative. You could also ask for a manager if you’re not making any headway.

“As for the negotiations, be persistent and persuasive,” Schwab says. “Write down your arguments beforehand and make them sympathetic to your case.” Share any truthful reasons you may be having a hard time and show that you want to pay as much debt as you can.

4. Get your deal in writing

When it comes time to finalize the deal, get the terms of the settlement in writing and stick to them. Any lump sum payment or payment plan you agree to has to be sustainable. If you sign an agreement that you can’t meet, you’ll be back at square one. 

Pros and cons to DIY debt settlement

There are advantages and disadvantages to DIY debt settlement worth considering:


  • Save money. By doing it yourself, you’re not paying exuberant fees to a company that could worsen your situation instead of bettering it. 
  • Move quickly. You don’t have to wait on two or more businesses to communicate with each other whenever they get around to it.
  • More funds go towards your debt. With DIY debt settlement, you’re able to spend the cash you would otherwise pay in fees to a debt settlement company to your creditors instead.


  • More effort. Hiring a debt settlement company is a lot less work on your end and can make you more comfortable if you aren’t used to negotiating. 
  • No guarantees. As with all types of debt settlement, nothing is guaranteed. You can spend a lot of time and energy to no success, which can be stressful and discouraging. 

What are your rights? Learn about the fair debt collection practices act

Frequently asked questions (FAQs)

Creditors will usually agree to accept 40% to 50% of what you owe in a DIY debt settlement.

There are both pros and cons associated with debt settlement, whether you do it yourself or hire a settlement company to help. “It’s less cash out of your pocket, but the settlement stays on your credit history for seven years,” Warren says, “Also, the forgiven amount is taxable income to you the next year and the creditors never forget to send a 1099.”

While it’s possible to get a better deal than 50%, it’s likely not worth the time it would take to negotiate a super low settlement. “It would be a tough slog; time consuming and involving considerable anguish,” says Ward.

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During college, Jacqueline DeMarco interned at a retirement plan advisory firm and was tasked with creating a presentation on the importance of financial wellness. During her research into how money can affect our health, relationships and career, Jacqueline realized just how important financial education is. Today, Jacqueline has worked with more than two dozen financial brands, including LendingTree, Capital One, Credit Karma, Fundera, Chime, Bankrate, Student Loan Hero, SoFi, and Northwestern Mutual, providing thoughtful content to give readers insight into complex topics that they likely didn’t learn in school.

Jenn Jones


Jenn Jones is the deputy editor for banking at ӣƵ Blueprint. She brings years of writing and analytical skills to bear, as she was previously a senior writer at LendingTree, a finance manager at World Car dealerships and an editor at Standard & Poor’s Capital IQ. Her work has been featured on MSN, F&I Magazine and Automotive News. She holds a B.S. in commerce from the University of Virginia.

Maddie Panzer


Maddie Panzer is the Updates Editor on the ӣƵ Blueprint team. Prior to joining the team, she studied journalism at the University of Florida. During her studies, she worked as a reporter for the New York Post, WUFT News and News 4 Jacksonville. She was also editor-in-chief of her school’s magazine, Orange and Blue. Maddie holds a B.S. in Journalism.