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The Most Important Purpose Of The Debt Settlement Letter

Posted By:  |  June 2, 2014  |  0 Comment(s)


Author: Anthony Manganiello

Author of The Debt-FREE Millionaire and creator of

If you’ve hired a debt settlement company to negotiate lower balances on your accounts, then you may be familiar with what’s referred to as the “settlement letter” (also sometimes referred to as a “letter of agreement”). When it comes to the settlement letter, the most important thing you must keep in mind is the ultimate purpose it will serve. Think of it this way…

Imagine completing the settlement program you’re currently on. Then, a few months later (when you’re thinking you’re free from all those annoying accounts), you receive a letter from a collector… and it’s referencing an account that you’ve already settled.

Don’t think this can happen…? Think again!

It happens with some regularity. When you understand how these accounts are handled it’s easy to see why. Every month, creditors and collectors are transmitting files with tens of thousands of records. Each record represents a delinquent account. Given the sheer volume of numbers, the possibility of one of your settled accounts being one of them, doesn’t seem too far-fetched.

So… the single most important purpose of the settlement letter is PROOF!

Proof that you’ve paid that account off. And since you’ve paid it off for less than was owed at the time of settlement, the settlement letter must prove that the creditor to agreed to terms other than those previously agreed to when you applied for that account.

In order to provide proof that the payments you’ve made towards any settlement has fully satisfied your financial obligations towards that account, your settlement letter should include 5 items:

  1. A reference to the original account number as well as the current account number: Sometimes collection agencies will generate an internal account number for their record keeping purposes. So, be sure the original account is also included.
  2. The current balance owed at the time of settlement.
  3. The terms of the new agreement. Will it be a lump sum, or will the settlement be paid off over several payments. The due dates for any/all payments should be clearly outlined, and the amounts required for any/all payments.
  4. An indication that the creditor agrees that, so long as the terms of the letter are kept, your debt (the account in question) will be deemed fully satisfied.
  5. All information on the letter is accurate. Your name, and any other information that ties you to that account.
  6. How your creditor will report your account to the credit bureaus after the settlement is satisfied.

Typically these letters come from the creditor. The settlement company you’ve hired should have protocols in place to ensure that each settlement letter is accurate, and includes all the necessary information for you to prove your account has been “paid as agreed” (I put “paid as agreed” in quotes because your settlement company should request that once the terms of this new settlement arrangement have been satisfied, that’s how this account will appear on your credit report – Item 6 above).

Once you have a settlement letter with that information, then, AND ONLY THEN, should any payments be remitted to your creditor. If payments are remitted to your creditor before you have a finalized settlement letter (or letter of agreement), those payments could merely be applied towards the full balance of the account. This mistake could result in you still owing money on that account. Obviously that’s NOT what you’re looking for…

Once you’ve completed the settlement program, and all accounts intended for settlement have indeed been settled, you should keep a copy of each settlement letter, along with the canceled checks that were written towards each settlement. The canceled checks prove that the terms of the letter have been satisfied, and the letter proves that the creditor agreed to those terms and reduced the total amount owed. Be sure that all this information is keep in a VERY safe place… because… you never know when you may need it.

It’s been said that the best defense is a great offense. A solid debt settlement letter, along with the canceled checks proving you’ve satisfied the terms of that letter, is a great way to go on the offense if any settled account ever needs to be defended.


  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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