Author: Anthony Manganiello

Author of The Debt-FREE Millionaire and creator of www.DebtFreeAcademy.com

In previous posts and videos, I’ve outlined the importance of the settlement letter, and why they’re critical to the settlement process. In this post, I’m going to provide you with what I believe to be six important elements to a good settlement (a.k.a. letter or letter of agreement).

It’s important that you understand that settlement letters originate from the party with whom you or the settlement company you’ve hired is negotiating. That party (the creditor or collector), will draft the document, and it’s up to you to ensure the settlement letter includes all necessary information to prove that, after all payments for the settlement are complete, your obligations to that account have been completely satisfied.

The purpose of the settlement letter is to provide proof that your creditor has indeed agreed to new terms that supersede the original agreement (I.E. contract) you signed when you were first given that account. The best way to look at it is from the perspective of having to prove, in the future, that the funds you’ve submitted for the settlement were intended to satisfy, in full, your obligations for that specific account, and result in a zero balance owed.

To accomplish this, there are six things your settlement letter should include. They are:

1. The Original Account Number: If your account was charged off by the original creditor, and is in the hands of a collector at the time of settlement, you need to be sure that the settlement letter includes a reference to the original account number. This is important because the original account number is what was used to establish the account from which the current outstanding balance is owed.
2. The Current Account Or Reference Number: In #1 I mentioned the term “charged off.” This means your account was inactive for a period of time while in the possession of the original creditor. After a certain period of time of inactivity (non-payment), the original creditor is required to charge it off for accounting purposes. When this occurs, your account is passed off to a collector. That collector may very well assign your account an internal reference or account number. If this is the case, you need to be sure your settlement letter includes this number as well as the original account number.
3. The Current Balance Owed At The Time Of Settlement: This may sound obvious, however you want to be sure that the current balance is listed, and that it’s accurate.
4. The Specific Terms Of The Settlement: This is where the new payment arrangements that will supersede the original agreement will be noted. Here the terms must be completely objective. If you have a $3,000 account being settled with one payment, those terms may look something like this:

   One payment of $1,500 must be received by August 15, 2014.

   If it’s a multi-pay settlement, then it may look something like this:

   The first payment of $550 must be received by August 15, 2014
   The second payment of $550 must be received by September 15, 2014
   The third payment of $550 must be received by October 15, 2014

5. The Specific Address & To Whom All Payment Are to Be Sent: This is another one that seems obvious. However, sometimes the payments are to be sent, and in some cases made out to, a party different than the one listed on the stationary the settlement letter is printed on.
6. The Result Of The Completed Or Satisfied Settlement: Here you want to be sure that the party with whom you’re entering the agreement stipulates that the account will be fully satisfied and, if possible, marked “Paid As Agreed” on your credit report.

In all cases, it’s not unhealthy to have a healthy sense of paranoia when it comes to settlements. The collection machine that exists has millions of accounts funneling through it every year. A healthy sense of paranoia is a “better safe than sorry” situation. In the event someone at the collection agency handling your account forgets to mark your account correctly, you’ll need this kind of proof to protect yourself.

The settlement company you’re working with should have internal protocols to ensure that all necessary requirements to a good settlement letter are in place BEFORE any payments are submitted, so be sure to discuss this with them. If your settlement letter includes these six elements, you shouldn’t have any trouble proving the validity of the settlement in the future – if necessary.