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Debt Settlement: How To Write an Agreement Letter (+ Template)

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In a Nutshell

If your lender agrees to let you settle a debt for less than what you owe, you'll need a written agreement that includes: - Information about the debt - What you'll be expected to pay - How much will be forgiven - What the repayment terms are If your lender doesn't send an agreement, you can use the template in this article to draft a written agreement to make sure you're both on the same page. It’s important to get any debt settlement agreement in writing!

Written by Mark P. Cussen, CMFCLegally reviewed by Attorney Paige Hooper
Updated September 21, 2023

What Is Debt Settlement?

Debt settlement is a form of debt relief. It’s most popular for credit card debt. Negotiating a debt settlement agreement for other kinds of debt like student loans, a car loan, or home mortgage usually isn’t  possible. 

That’s partly because unsecured debts like credit cards and medical bills don’t involve collateral and can be erased in bankruptcy. If a creditor or debt collector believes you may file bankruptcy, they might be motivated to settle your debt for less than the total amount so they get something rather than nothing.

If you make an agreement with a creditor or debt collector to settle an outstanding debt, you’ll need to formalize your agreement in writing. Often, the creditor will draft a letter and send it to you. If they don’t, you can write the agreement yourself. Send two copies to your creditor so that they can send a signed copy back to you. 

Having the agreement in writing ensures all parties are on the same page about the settlement terms. It’s also there for future reference if you or your creditors have any questions about the settlement of the debt.

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Debt Settlement Agreement Template

Here is a template you can use to draft your debt settlement agreement. Customize the information contained in this agreement to match your circumstances. The agreement letter can be either simple or complex, depending on your specific financial situation and the type of debt that you owe. 

A word of caution: This is only a template. It’s offered here so you can see what debt settlement letters look like. This shouldn’t be construed as a recommendation for its use as a final legal document. Seek legal advice if you need to. 

This Debt Settlement Agreement (hereafter, “Agreement”) is between ________________________ (“Creditor(s)”), and ______________________________ (the “Debtor”). (When mentioned together, the “Parties.”)

 ___________________ [mm/dd/yyyy] is the effective date of this Agreement.

The Parties agree to the following terms:

Debtor currently owes $____________________ (“Present Debt”). The account number associated with the Present Debt is ________________________.

Creditor agrees to accept a Debt Settlement Payment in the amount of $____________________ as full payment and satisfaction of the Present Debt. Upon acceptance of Debt Settlement Payment, Creditor will a) discharge the Present Debt as paid in full, b) update/modify its internal records to denote Debtor's Account associated with the Debt as paid in full, and c) make any and all efforts to report to all credit reporting agencies that Debtor's Account associated with the Debt is marked as paid in full.

Debtor will make Debt Settlement Payment by: [choose one]

__ Lump sum, on or before ___________________ (mm/dd/yyyy)

__ Installments: [specify the number of payments, amounts, and due dates]

Debtor will execute Debt Settlement Payment by: [choose/identify one]

__ Certified check

__ Money order

__ Bank wire

__ Other: ________________________________.

If Debtor fails to make any payment by its due date listed above, this Agreement will immediately become void.

This Agreement is binding on the Parties involved, including successors or assignees.

If any provision or part of this Agreement is deemed unenforceable for any reason, the remaining provisions or parts will remain in full effect.

This Agreement shall be under governing law of the State of ______________________.


Debtor's name (printed): ________________________________________________

Debtor's signature: _____________________________________________________

Date signed: ___________________________________________________________

Creditor's printed name: _________________________________________________

Signature of creditor's authorized representative: ____________________________

Date signed: ______________________________________________ (Effective date)

Be aware of the impact that a debt settlement agreement can have on your credit score. If your creditor agrees to report to the credit bureaus that your debt has been paid in full, then this can help your score. Conversely, if your creditor reports that you have only paid in part or settled for a lesser amount of debt, then this could create another blemish on your credit report. Still, a partial settlement is ultimately better for your credit than a debt that remains unpaid.

What Does a Debt Settlement Agreement Have To Include?

Whether you or the creditor writes the debt settlement agreement, you’ll want to ensure the terms of this agreement are clearly spelled out.

To that end, make sure it contains the following information:

  • The original creditor and/or debt collector’s company name

  • Your full name

  • Your account number

  • The amount of the debt you owe

  • The settlement amount that was agreed upon

  • The terms and number of payments to be made, including the interest rate that will be charged (if you aren’t doing a lump-sum settlement)

  • The date(s) that payment(s) must be received by (the due date)

  • Words indicating that the account will be satisfied in full when the settlement amount is paid

  • How the account will be reported to the credit bureaus* 

  • Any disclosures that may be required by your state of residence (if necessary)

*This is also negotiable. The creditor may report the debt as any of the following (or something else):

  • Settled

  • Settled — paid less than owed

  • Settled — zero balance

  • Paid in full

If you can negotiate for the creditor to report the debt as “zero balance” or “paid in full,” this will look better on your credit report and won’t hurt your credit score as much.

Let’s Summarize...

If you’ve negotiated a settlement with a creditor, you can use this template to get the terms of the agreement in writing. You can modify this template to fit the needs of either party. If you want to ensure that your agreement is legally binding, don’t hesitate to have an attorney write it or review your copy. They may also have other useful legal advice regarding your debt settlement agreement. Debt settlement can help you find debt relief and get your personal finances in order, so be sure to follow the guidelines presented here.

Written By:

Mark P. Cussen, CMFC


Mark has over 25 years of experience in the financial industry, and has worked with investments, insurance and mortgages as well as income tax preparation and comprehensive financial planning. His writing work includes insurance and securities training manuals and educational art... read more about Mark P. Cussen, CMFC

Attorney Paige Hooper


Paige Hooper is a seasoned consumer bankruptcy attorney with 15 years of experience successfully representing debtors in Chapter 7, Chapter 11 and Chapter 13 cases. Paige began practicing bankruptcy law in 2006 and started her own solo, multi-state bankruptcy practice in 2012. Gi... read more about Attorney Paige Hooper

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