Consumer Debt Settlement negotiation is a debt repayment strategy where you negotiate with your creditors to accept a partial, one-time payoff amount as full satisfaction for the debt.

Consumer Debt Settlement Negotiation

Consumer Debt Settlement negotiation is a debt repayment strategy where you or a designated third-party company negotiate with your creditors to accept a partial, one-time payoff amount as full satisfaction for the debt. If the creditor agrees, only a percentage of your outstanding balance is paid and the rest of the debt is forgiven, canceled for good. Why would a creditor be willing to negotiate a partial payment on your unsecured debt? Either because it is in its best interest to minimize its loss in debt recovery or when it is fearful of your inability to payoff the entire balance owed due to the risk of your filing for Chapter 7 bankruptcy.

Here is an overview of consumer debt settlement negotiation if you decide this is the debt relief option best suited to improving your financial future. We assume that you have previously investigated or participated in debt relief credit counseling or debt relief consolidation prior to considering this debt relief option.

Consumer Debt Settlement Negotiation - What?

What Type Of Debt?

When you are struggling to pay your bills, you will need to know what type of debt you have and what happens if you don’t pay it.

Secured Debt

You will have either secured debt (that has been guaranteed by some type of collateral) like your house mortgage, equity line or auto. If you don’t pay the secured debt, the creditor can repossessed your collateral property as payment without having to first sue you for a judgement.

Otherwise you will have unsecured debt (that does not have a property guarantee), like credit cards, medical bills and personal loans. If you don’t pay the unsecured debt, the creditor must sue in court to obtain a judgement to seize your personal property as payment (e.g., wage garnishing).

Government tax debt and federal student loans are a different category with drastic collection procedures that do not require a court judgment.

Classify your unsecured debts by type (credit cards, medical, loans), outstanding balance size and age of the last payment. Debts to be considered for negotiation should be between 3 to 5 months since last payment. It is this range of late payment where your creditor will consider either a charge-off or moving the debt to a third-party debt collector. This is when the most like savings can be negotiated.

Consumer Debt Settlement Negotiation - Assessment

Assess your financial situation

Are you experiencing a financial hardship such as loss of job, divorce or high medical bills? Is this a long-term situation? Are you so far behind paying bills that the only other alternative is filing for bankruptcy? Is your credit profile already being hurt due to lack of payments? Do you have a realistic source of funds to payoff 50% of your unsecured debts in a 24 month period?

You must be able to respond “yes” to these questions to be a candidate for successful consumer debt settlement negotiation. Why?

Creditors Need To Be Motivated
  • NO Financial Hardship | Creditors Have No Incentive To Negotiate
  • NO Long-Term Financial Problems | Creditors Will Wait Until Your Situation Improves
  • NO Bankruptcy Option | Greatest Threat To Creditors | The Alternative Is No Payment
  • NO Credit Profile Negatives | It Is Premature To Begin Creditor Negotiations
  • NO Source Of Funds | Creditors Need Lump Sum Cash Offers To Settle Debts | Remember – You Only Take This Option To Be Successful


Consumer Debt Settlement Negotiation - Process

Focus And Consistency

There are two things to be negotiated with your creditors: how much you can pay and how it will be reported on your credit reports.

You establish beforehand a total budget, over what period of time, that you can afford for debt settlement. Your goal should be to payoff less than 50% of your total unsecured debts in less than 24 months.

Start at 15% of what you owe and wait for a creditor response. Most will accept a range of 30-50% of the debt amount. Let the creditor know that you are dealing with multiple creditors, and will be making immediate lump sum payments based on the most aggressive responses. Don’t accept the initial creditor response.

You should know the statute of limitations for each debt in negotiations. The closer a debt is reaching its statute of limitations, the more desperate a creditor will be motivated to negotiate a debt settlement.

Your creditors need to understand that your long-term financial hardship is the reason for this debt settlement negotiation. If not successful, you will be forced to file for Chapter 7 bankruptcy. If this happens the unsecured creditor understands that he will receive nothing in payment.

Once the creditor agrees to a settlement, get the terms of the settlement and credit reporting in writing prior to any payment. A written agreement holds both parties accountable. They have to honor the agreement, but if you miss your payment date, the creditor can retract the settlement agreement, and you’ll be back where you started. But you will have lost time and your debt settlement budget.

You should negotiate in your agreement that the negotiated debt is marked as “Account Paid” rather than “Account Settled”, which has a negative impact on your credit history for 7 years.

Consumer Debt Settlement Negotiation - Who?

Who Does The Negotiating?

Experience, time and cost are the main distinctions between consumer debt settlement negotiation through a third-party company and doing it yourself. There is also the issue of how one’s personality will deal with the stress of negotiating with creditors and bill collectors.

A reputable debt settlement company will not guarantee a specific settlement amount. It can’t because your creditors actually have no legal obligation to settle your debts. Rather, it will provide a realistic estimate and time frame for making offers to creditors that can ultimately result in settlements that save you significant amounts of money.

If you decide to use a third-party debt settlement company, expect all fees, costs and guidelines to be disclosed up-front. You should be provided with an estimate of how much time may elapse before settlement offers are made on your behalf, and how much money you must save up (if you don’t already have a fund established) before these offers will be made.

Also, the debt settlement company will send all settlement offers to you for approval, prior to them being sent to creditors.


Consumer Debt Settlement negotiation will help those consumers with a financial hardship, that have little likelihood of repaying their creditors but at a significant cost to their credit profile. The shorter the time the debt settlement process takes (24 months or less), the more likelihood for success and less costly will be your debt settlement. This option is one step removed from personal bankruptcy and should not be taken lightly.

An overview of the consumer debt settlement negotiation is presented. This includes 1) What Is Being Negotiated?; 2) Self-Assessment Of Financial Situation; 3) Process Of Negotiation With Creditors; and 4) Who Does The Negotiations?

Have a comment or question? We welcome your feedback, so just jot it below. And, if you know someone that might benefit from this article, please send it along via your favorite social media channel. For additional information on how to regain control of your financial situation, please Contact Us for a free, no obligation consultation.

Credit Repair | Identity Theft

Revised:  2019-07-31

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