Debt Relief / Settling Debt On Your Own

How To Settle Debt For Less On Your Own: 5 Things To Consider

Written by Ascend Team
Updated Aug 17th, 2023

This article is for informational purposes only and should not be construed as financial advice.

As a previous CEO of a debt settlement company, I have settled a lot of debt in my life. So, I understand how to settle debt, who sues, and what are the pros and cons of doing it yourself vs hiring a firm.

There are many pros and cons to settling debt on your own opposed to working with a debt settlement company. One main pro of settling debt on your own is saving money on fees. Debt settlement companies typically charge anywhere between 15%-25% in fees, so depending on how much debt you have, these fees can add up rather quickly. That said, there are pros to working with a debt settlement company, so we built a DIY debt settlement calculator for you to compare the costs and pros and cons of working without a debt settlement firm.

In this article we will walk through step-by-step how to settle debt for less on your own instead of working with a debt settlement company. 2 quick things:

1) You may want to consider what percentage to settle the debt for.
2) A Pay For Delete letter can be helpful when considering how to rebuild your credit after debt settlement.
3) Getting things in writing with debt collectors and collection agencies can be extremely important, so we will cover what to look for in your paid in full debt settlement letters.

Please note we are not advising that you do it on your own, but rather informing you on how it would work. 

1) Know Your Finances and Hardship 

Before attempting to negotiate with your creditors, gather all the information about your financial situation. It may be helpful to write out a list of all the monthly payments you have as well as your debt amount. If you are going to try to settle your debt on your own, it is important to know that you must fall behind on your account(s). A creditor may be less likely to work with you to negotiate the debt if you are current on all your accounts. 

A) Know How Much You can Set Aside Each Month to Settle with Creditors

Knowing how much you will be able to pay will come in handy when you are doing the actual negotiating with your creditors. If you have your financial list in front of you, take the time to calculate what a doable monthly payment may be for you. 

For example, let's say you have $10,000 in debt with 10 different creditors. Let's say you want to get out of debt in 24 months and that you will settle each account for 50% of what is owed. Then you may want to set aside $208.33 each month potentially to another bank account, so you keep yourself accountable for those funds.

Another thing to consider is whether the creditor will send your account to a debt collector and whether that debt collector will sue you. If you have a list of creditors that are likely to sue, then you may want to be much more aggressive on how much you save each month to settle the debt.

B) Understand How to Articulate Your Hardship

It is important to be able to articulate your situation and how you arrived to it in the first place. Often, it will be helpful for the company to be able to better understand you and your situation and it may make them more likely to work with you if you are honest and informative. 

For example, if you had medical bills unexpected that you had to put on your credit card, be able to communicate how you got into the financial position that is preventing you from being able to pay the entire balance.

C) Know Your Finances

It is very important to know your debt amount and your income when considering debt relief. Often times, creditors will ask about your financial situation to see how much they can offer you in a settlement, so it is important to be honest and upfront when sharing this. It is also important to decide which debts you want to settle. You do not have to settle all of them, so it is good to calculate how much you owe on each of them, and where they are in the collection process. 

For example, a creditor may ask for how much income you make and your expenses each month. If you have $5,000 in income after taxes, and expenses of $6,000, then they may be more willing to settle than if you have $15,000 in income and $6,000 in expenses.

2) Understand what Percentages to Offer the Creditors

You may want to understand what percentage to offer creditors to settle the debt.

One of the bigger pros of hiring a debt settlement firm may be that they know how low creditors will go. So, while a debt settlement firm may settle an account for 40%, you may not know that going into negotiations.

That said, you may be able to research and figure out what to offer creditors beforehand.

When speaking with each creditor, it is good to know that each scenario will be different. Some may be more willing to work with you than others, and your specific situation may change their decision as well. Older debts MAY be easier to settle, due to the fact that if you have not made a payment on a debt in a couple of years, it may have passed the statute of limitations for your state. 

It may be best to start small anticipating that the creditor will present you with a counteroffer, and you will want enough wiggle room to be able to manage it. An example of a starting percentage may be 25%, expecting that it may go up to as much as 50% of the original debt. If you are unable to come to an agreement with the creditors, asking about a payment plan may be the next step. 

A) Pre-Lawsuit 

If you are not currently facing a debt collection lawsuit, creditors may be more willing to settle for a lower amount than if you are sued. 

B) Post-Lawsuit

A debt collection lawsuit may be a bit different than a normal debt collector calling you. It will depend case by case if you should call the original creditor or the law firm suing you. If calling the original creditor, you can attempt to directly settle with them and they can help negotiate everything and get it in writing for you. 

There are two things to note when dealing with a debt collection lawsuit, the first being you will probably sign a stipulated judgment, This essentially will claim that if you do not continue to make the payments on the terms of the settlement, then you may have a default judgment against you. So make sure you are prepared and able to make the payments agreed upon in the settlement. The second thing to note is that the percentage settled may be higher due to the lawsuit. In their perspective, it may be that the account would go to a judgment which then could be garnished and they would receive 100% of the balance, so they may believe they have the upper-hand. 

C) Creditor Specific 

It is important to note that the percentage the creditors will agree to may vary. Some creditors may be more willing to work with you opposed to others. Another thing to note is that credit unions may not give a discount, but it would be helpful to ask just in case. 

3) Prioritize Your Creditors Effectively 

It may be wise to research the likelihood of your specific creditor suing. Although it may vary situationally, it may be best to speak with the companies more likely to sue or where the debt is higher opposed to lower debt amounts. 

Some Creditors Sue, Some Creditors Do Not Sue

It is important to look at all of you creditors and see the potential of a lawsuit if there hasn't already been one. Some creditors are more likely to sue than others. It may be hard to know how often debt collectors take you to court. We recently did a study and found that some debt collectors may set a minimum of a $500 balance to sue. 

A debt collector will sue for unpaid debt when it believes it has a good chance of collecting that debt. Some attributes may be whether there are assets that have positive equity such as property, the amount of the debt owed, state laws regarding garnishment, and the statutes of limitations. Below are some questions to ask yourself: 

  • How many accounts am I past due on? The more accounts I owe the higher the chance one may sue me.
  • How is my debt proportioned? Do I owe all my credit cards and loans to one bank or is it spread out?
  • Is the creditor I owe most of my debt to local or small (credit unions)? Also, do they have more of a vested interest to sue me because they are a smaller bank (personal relationship)?
  • How often do creditors I owe have access to my assets?
  • Do I have checking, savings, or investment accounts with the creditors I owe? Can they see my transactions?
  • Do I have equity in assets that banks can calculate based on what’s reporting to my credit report?

Use our free Lawsuit Likelihood calculator to get an estimate of the potential of a lawsuit, but this is just an estimate not a guarantee. 

4) Understand Tax Implications

Tax Solvent vs Tax Non-Solvent 

You may be wondering how you may avoid paying taxes on debt settlement. We wrote an entire article covering how to avoid taxes in debt settlement with an IRS tax solvency calculator to help you estimate your tax solvency.

In rare situations, debts that have been canceled or forgiven might not be included in your taxable income. The exceptions to the norm are as follows. Other kinds of debt can be decreased or eliminated, but not entirely. The IRS refers to these debts as exclusions, and they are taken into account before exclusions while filling out tax forms. As per the IRS, these types of debt forgiveness aren’t taxable in the section below.


The following forms of canceled debts may be allowed to be deducted from taxable income by taxpayers:

  • Bequests and gifts
  • There are a few types of student loans taken by doctors, nurses, and teachers working in low-income or rural locations.
  • Debt that can be written off, such as home mortgage interest (deductible on Schedule A)
  • Value reduced after purchase (e.g., a seller may decrease the value of a property if the owner has debts)


A few types of debt might be reduced. However, they should be filed as exclusion, and the taxpayer should use Form 982. They are as follows:

  • Discharge of debt of the insolvent taxpayer
  • Discharge of debt through bankruptcy
  • The Discharge of qualified farm indebtedness
  • Discharge of qualified real property business indebtedness
  • Discharge of qualified principal residence indebtedness

Work with a licensed tax professional who knows the debt settlement process well and tax consequences while negotiating these exemptions and exclusions.

5) Getting Settlements In Writing

When I was the CEO of a debt settlement firm, it was imperative to me that we get all debt settlement offers in writing, including the stipulated judgment. 


Because if the collection agency takes the payment and then another collection agency tries to pursue you for that same debt, you have something in writing showing that you already settled the account with a $0 balance.

Secondly, it's also helpful to make sure you get the payment in full letter. On this letter, it may show that you have a $0.00 balance and that nothing is owed. This can also be helpful in the above scenario if another collection agency is trying to pursue you for the same debt. 

You can show them both the settlement letter/offer and the payment in full to close out the account.

6) Should You Settle Debt On Your Own?

You may still be curious if you should or should not settle debt on your own. Although the answer will vary depending on each situation, we built a DIY Debt Settlement calculator below to help go through questions that can help you understand the pros and cons of hiring a company vs settling debt on your own to help you make the most informed decision. You can also give Ascend a call at 833-272-3631 or contact us! We’d love to help you figure out what might be best for your situation.