DIY Debt Settlement: Be Debt-Free in 6 Easy Steps

If you’re looking to save money, DIY will always be a cheaper option. But just like you wouldn’t try to replace your hot water heater without some basic idea of how it works, you shouldn’t attempt to settle your own debts without taking time to prepare yourself.

Debt settlement is the process of getting your debt discharged for less than the total you owe. In exchange, you offer to send them one lump-sum payment. While this procedure usually involves a professional debt settlement company that sets up the deal on your behalf, you can do it yourself.

If you’re overwhelmed by collection calls from debt collectors, DIY settlement could be the ideal solution. Here’s how to do it.

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How to negotiate your way out of debt

Here are the six steps you’ll need to follow to negotiate your own debt settlement:

  1. Prepare yourself mentally. This will not be a quick fix, but the long-term benefits for your financial situation will be worth the work.
  2. Obtain a copy of your credit report and examine it carefully. As a borrower, you have the right to dispute any debts that may be on your credit report by mistake. Take note of all debts that are legitimately yours and record the totals.
  3. Request a debt validation letter. All debt collectors must send these at your request to verify the debt and tell you exactly how much you owe.
  4. Make a budget. Base it on your take-home income. Calculate all nonessential spending and eliminate those items. Any extra money saved should go to the bank account that’s earmarked for your debt settlement funds.
  5. Negotiate with creditors. Once you have enough money saved, start contacting your debt collectors or credit card companies to work toward a settlement offer that works for both parties. If they try to argue, berate or verbally assault you, remain calm and tell them you will call back later. During the settlement process, you can also discuss how the creditor will report the settled debt to the credit bureaus.
  6. Get it in writing. Once a settlement agreement is reached, get everything on the record before you send payment to the debt collection agency or creditor.

READ MORE: Debt settlement — how to get your debt under control now

Step 1: Mentally prepare

The first step is often the hardest, and in DIY debt settlement, it is the one that matters the most. Before you start, you have to come to terms with the fact that this will be a long and challenging process. One strategy you can adopt is to create time-sensitive goals that break each objective into digestible chunks. 

Having the right mindset and fortitude to stick through your debt settlement is the key to prevailing. Just remember there is a light at the end of the tunnel, and when you reach it, it will feel that much sweeter.

READ MORE: Easy ways to eliminate expenses and save more

Step 2: Clean up your credit report

Your credit report is the collection of your financial records like bill payment history, loans, current debt, and other information. It is very important for your financial health that your report is accurate as that will determine your credit score and your ability to get loans and make purchases. Take a look at your credit report and confirm that everything listed is correct. You can learn how to do so for free here.

Never take debt collectors at their word. Always verify that what they are claiming is true. If you spot an inaccuracy on your report, dispute it in writing to the credit bureau explaining why you think the information is wrong and that it should be removed.

READ MORE: How will debt settlement impact your credit score?

Step 3: Request debt validation letters 

It’s always a good idea to force the lender to prove that the debt they claim you owe is actually yours. You can do this by simply contacting them and saying “I don’t think this debt is mine, you need to prove it is mine.” The creditor then has to supply a debt validation letter that proves the debt belongs to you. This tactic alone can lead to debts being written off if the creditor lacks the information or if they don’t want to go through the work.

READ MORE: Simple ways to boost your credit score

Step 4: Make a budget (and stick to it)

Budgeting is a small step that can truly transform your life. Start by writing down a summary of your income and expenses. Once you know the amount of debt you owe, determine how much you can set aside each month to save up for a lump-sum debt settlement offer.

Once you take control of your finances in this way, your money management skills will only improve with time.

READ MORE: How to start a budget from scratch

Step 5: Contact your creditors and/or debt collectors

When it’s time to call your creditors, remember that at the end of the day, they just want something back on the outstanding debt. With this in mind, most will be willing to work with you.

READ MORE: When is debt settlement a good idea?

Follow these steps

  • Make notes before you start making phone calls. Focus on what you want to say and have an idea of what you can afford.
  • Make a record of all of your unsecured debts (including credit card debts, medical bills and private student loans) and the creditors you owe.
  • Set up a strategy. Decide which creditors to call first, and know the exact dollar amount you can afford to pay them. Do you want to start with credit card companies, or debt collectors?
  • Remain calm and try not to get emotional or upset during the debt settlement negotiations.
  • Clearly explain your financial situation, why you are experiencing hardship and the reason for missed payments or delinquent debts,. Tell them that you want to reach a settlement agreement. Ask if any late fees can be waived.
  • Record your conversation in case a settlement agreement is reached to ensure you don’t have to restart this process the next time you contact them. Tell your creditors that you’re recording.
  • Do not agree to pay anything outside of your budget. Instead, counteroffer with a lower payment offer.
  • If a creditor makes an offer and you aren’t sure whether you can afford it, tell them you need more time. Don’t agree to anything that will leave you worse off than you are when you start.
  • If you cannot reach a settlement agreement, end the conversation and try on another day.
  • If a debt settlement agreement is reached, ask how it will be reported to the credit bureaus. Sometimes it’s possible to negotiate how the creditor reports the debt. “Paid in full” will affect your credit score less than “paid as settled.”

READ MORE: How does debt settlement work

Negotiating with a creditor vs. a third-party debt collector 

Attempting to reach a DIY debt settlement with the original creditor can be more difficult since they will lose any money you don’t have to pay. A third-party debt collector, meanwhile, likely purchased your debt for a significantly lower price than what you owe. This may make it easier to work with them to get a settlement.

READ MORE: How to deal with debt collectors

Debt is often sold to other companies, which is why you may find yourself negotiating with a different company than the one from which you originally borrowed money. Regardless of whether you’re working with the original creditor or a debt collector, remain vigilant and patient throughout the process to have the highest chances of success.

Step 6: Get it in writing

This part is essential because without any agreement in writing, nothing is official. This could result in you having to repeat the negotiation process all over again. Once an agreement has been reached, get all the information in writing before making a payment. After you’ve made your payment, monitor your credit report to confirm the debt has been accurately reported to the credit bureaus.

READ MORE: Debt settlement fees


The most significant advantage of a DIY debt settlement is the savings you can achieve if you are successful. Other benefits include having total control over your side of the process, learning valuable money management skills like budgeting that you can utilize for the rest of your life, and there’s the potential for the process to go faster with fewer individuals/companies involved.


The biggest disadvantages will be the hit to your credit report, the need to have enough money saved to afford a lump-sum payment, and IRS implications. You’ll have to pay income taxes on the settled amount.

READ MORE: Debt settlement pros and cons

When to consider hiring a professional debt settlement company

Remember you don’t have to go the DIY route if you don’t want to. There are plenty of reasons to work with a professional debt settlement company instead, and you’ll still achieve the ultimate goal of getting rid of your suffocating debt. Consider working with a debt settlement company if any of these apply to you:

  • Your debt amount is too large for you to handle on your own.
  • You feel you can’t reach a settlement offer on your own.
  • Creditors and lenders could choose not to settle with you. You could potentially be sued if they refuse to settle. 
  • Your credit score will take a negative hit you can’t afford if you stop making payments to negotiate and settle.
  • You’re facing mental health challenges, are uncomfortable having difficult conversations or don’t have the time or energy to deal with debt collectors.

READ MORE: Debt settlement companies

Other debt relief programs 

There are a few other debt-relief options you can consider. These include:

Debt consolidation: This involves taking out one bigger loan to pay off your smaller loans.

Credit counseling: A nonprofit credit counseling agency can set you up on a Debt Management Plan (DMP). With DMPs, a credit counselor acts as the mediator between you and the creditor to establish a monthly payment plan you can afford, typically for a 3-5 year period.

Home equity loan: If you have enough equity in your home, you can borrow from that and the interest rate will be significantly lower than what you’d pay for most personal loans.

Balance transfer credit card: You’ll apply for a new credit card with a 0% introductory rate, then transfer your debts onto that new card.

READ MORE: Debt relief programs

The bottom line 

Do-it-yourself debt settlement can save you money and make a lot of sense if you have the right mindset, patience and game plan to see it through. Depending on the type of creditor you’re working with, the process could be relatively straightforward, or long and arduous. If you think DIY debt settlement is for you, follow the steps outlined above to get your personal finances back on track toward a healthy financial well-being.


When should you see a credit counselor?

If you’re struggling to repay your debt or manage your finances you should consider visiting a credit counselor. Counselors can advise you on how to manage your money more effectively by helping you create a budget or establish a debt management plan.

What is a reasonable offer to settle a debt? 

This depends on who owns your debt, but generally between 25% to 50% of your total debt is likely the lowest your creditor would accept. That said, start on the low end of the spectrum — around 15% — and work your way up only if they continually deny your offer.

Which is better, debt settlement or debt consolidation? 

Debt settlement is the process of reducing the total amount of debt you owe whereas debt consolidation is about combining multiple debts you have with different creditors into a single debt so that it is easier to manage and make payments for. One is not necessarily better than the other and which is best for you will depend on your ultimate goal.

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