Negotiate directly with creditors to pay a lump sum less than what you owe. Typically used when accounts are already seriously delinquent. Last resort before bankruptcy.
People in serious financial hardship who cannot pay minimums and want to avoid bankruptcy.
Understand the consequences: accounts must be delinquent before creditors negotiate. This damages your credit score significantly.
Stop paying and save funds in a separate account to build your settlement offer.
Contact the creditor or collections agency. Offer 40–60% of the balance as a lump sum.
Get any agreement in writing before making any payment.
Be aware that forgiven debt may be reported as taxable income by the IRS.