How to Offer a Settlement for a Bad Debt on a Credit Report

When you are unable to pay off a debt, the creditor may write off the amount owed as a bad debt. But while the creditor removes that debt from its books, it is still, unfortunately for you, on your credit report. When you do get the money to pay at least part of the debt, offer the creditor a settlement.

Contact the creditor. You may be able to clear up the debt directly with the original credit card issuer or other creditor. However, in some cases, bad debt matters are farmed out to collections firms. Ask your creditor whom you need to speak with to settle the debt. Often a collection firm will have already contacted you directly in an attempt to recoup the amount owed.

Offer the creditor less than 20 percent of the amount owed. This might sound low, but most creditors would prefer some payment to no payment. Explain briefly why you are unable to pay more. Stand firm in the face of skepticism or posturing on the part of the creditor or collector. It is his job to get as much money as possible before settling the matter.

Negotiate. According to Smart Money, most bad debts are settled for between 20 percent and 75 percent of the original amount owed. Remain calm as the creditor responds with a counteroffer. Be prepared to haggle for a few minutes or more. Your objective is to settle the debt for the lowest amount that you can afford.

Get the agreement in writing. Once you have settled on a figure, insist on getting a letter from the debtor or collection company that spells out your commitment. The creditor must agree to report the debt as "settled" to all three credit bureaus. The letter might also spell out by what date the settlement sum should be received.


  • If the thought of negotiating gives you the willies, work with a debt management company. Such an organization may get the creditor to agree to lower payments and possibly a lower interest rate on the debt. You will be paying the amount in full, but in affordable installments.


  • Beware of debt-settlement firms. They offer to negotiate with creditors on your behalf, but may charge outrageous fees, according to Smart Money magazine.
  • Forgiven debt has tax implications. The creditor typically reports the amount of the forgiveness -- for example, the 75 percent of the debt you did not pay when you settled -- to the Internal Revenue Service and will send you a Form 1099 to include with your return when you file your taxes.

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About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.