Can You Really Settle Debt Yourself Without a Company?

You've read that debt settlement is simple—just call your creditors and ask to pay less. Why pay a debt settlement company 25% in fees when you could make the call yourself?

Some people do negotiate settlements themselves. But it's not as simple as just making a phone call, and creditors don't all respond the same way.

Here's what DIY settlement actually involves, when creditors will work with you (and when they won't), and how to decide if you should try it yourself.

Will creditors actually negotiate with you directly?

Yes, but not all of them.

According to CFPB research, creditor policies vary widely—some will negotiate with debt resolution companies, while some refuse to work with them. When creditors do work with settlement companies, they often offer the same terms they'd offer you directly.

Debt buyers are different

Sometimes your creditor will sell your debt to someone else—a debt buyer. It’s a way to recoup some of what you owe if they don’t think you’ll repay them. Debt buyers purchase your debt for pennies on the dollar, and they own the debt now, instead of the original company you owed money to. Because they didn’t pay much for your debt, debt buyers may be more willing to accept lower settlements. Your odds may be better with a debt buyer than an original creditor.

What affects whether they'll negotiate

Here are some factors that might give you some idea about whether your creditor might be willing to work with you or not:

• Who owns the debt (original creditor or debt buyer)
• Whether you can show financial hardship, like an illness or disability
• How old your debt is (older debts can sometimes be settled for a lot less)
• Whether you can offer a lump sum (preferred) instead of a payment plan

What DIY debt settlement actually looks like

Debt settlement can be a months-long process. In between saving up a settlement offer, figuring out how much you can pay, communicating back and forth with your creditors, and making sure you’ve covered your tracks with the right paperwork, it can take a lot of time. 

What you need to do

Here’s a step-by-step approach for how to settle your debt yourself, without a company:

• Stop paying your debt: Creditors are more likely to negotiate with you if they think there’s a chance you won’t be able to repay them. It’s likely that you’ll see some dings to your credit score, but it’s entirely possible to rebuild that over time. Plus, not making any payments makes it easier to complete the next step.
• Start saving up a settlement offer: Your odds of negotiating a successful offer go up if you can make a lump-sum payment. It’s easier to save this up if you’ve stopped making payments on your debt. Pro tip: Keep that money in a separate savings account.
• Know your numbers: Take a look at your finances and figure out what you can realistically afford to pay. Don’t agree to pay more than you can afford. Keep in mind that forgiven debt can sometimes be treated as taxable income, too, so you may owe taxes at the end of the year. An accountant can help you plan this out.
• Verify the debt: Just because someone says you owe something doesn’t make it true. The CFPB recommends that you ask for a debt validation letter from any creditors demanding payment.
• Start negotiations low: Once you have a decent amount saved, start your negotiations on the lower end of what you have. This gives you wiggle room so you can negotiate upward, if you need it. 
• Get everything in writing: Print copies of emails you send, take notes of each phone call, and keep copies of any letters between you and your creditor. If you come to an agreement on a settlement offer, make sure you keep a copy of that, too. 

Single debt vs multiple debts

It’s a lot easier to manage a DIY debt settlement if you’ve just got one single debt to keep track of. Once you add more debts into the mix, keeping track of all of the different calculations, communications, and negotiations with different lenders can be trickier. It’s just something to keep in mind as you plan your debt pathway forward. 

Settlement amounts

Creditors can vary a lot in terms of how much they’ll agree to accept as a lump-sum offer—and indeed, if they’ll accept an offer at all. But it’s not uncommon for creditors to accept lump-sum offers ranging from 30% to 50% of how much you currently owe. If you’re starting to negotiate from the lower end of the spectrum, it’s not a bad idea to start from 10% to 20% and work your way up from there.  

When DIY works vs. when you need help

What companies actually provide

CFPB research confirms: when creditors work with settlement companies, they often offer the same rates that they offer directly to consumers. But just because they offer similar rates doesn’t mean DIY is always cheaper.

Debt settlement companies have existing relationships with some creditors, and sometimes that does translate into better settlement offers for you. Even if it doesn’t, debt settlement companies offer support and guidance in how to make your debt settlement journey a success. Whether it’s showing you how to save up, offering help if a creditor takes legal action against you, or handling all the negotiations with your creditors for you, that kind of debt relief support can make the difference between success and failure for many people. 

DIY may work when

• You’re negotiating a single debt
• You’re negotiating with a debt buyer, rather than the original creditor
• You know where to get help if a creditor takes legal action against you
• You already have a lump sum of cash saved, or you can make a plan to save it up
• You’re organized and have time to manage all of the details in a debt settlement negotiation

Debt settlement companies make sense when

• You’re dealing with multiple debts and different creditors
• You’re negotiating with the original creditors, who are often more strict
• You’re not confident in your negotiation abilities, or you find it too stressful
• You don’t have the time or capacity to manage and track your different debt settlement offers

Understanding debt settlement company fees

Most debt settlement companies charge a fee ranging from 15% to 25% of the amount of debt you enroll in the program, charged only after settlement. For example, if you enroll $20,000 in debt and settle for $10,000, a company charging 25% would take $5,000 (25% of the $20,000 enrolled). You pay $15,000 total. In other words, rather than paying the full $20,000, your total is $15,000.

Bills Action Plan

Step 1: Creditor willingness varies—some negotiate, some don't.

Step 2: Assess your situation: Single or multiple debts? Original creditor or debt buyer? Can you handle months of pressure?

Step 3: If trying DIY, start with debt buyers or smaller amounts. Save for lump sum.

Step 4: If DIY fails after a few months, companies are still an option.