Negotiating Paying Off Debt – Rule of Thumb?

Two Legal Contract Terms:

unilateral contract is a legally enforceable promise – between legally competent parties – to do or refrain from doing a specified, legal act or acts. In a unilateral contract, one party pays the other party to perform a certain duty. What this simply means is that you can send your creditors checks or contracts and when they cash or accept your checks or other payment such as a money orders will be their legal acceptance to all negotiated or proposed amounts of payment that can be less than the entire debt owed.

Accord and satisfaction is a contract law concept about the purchase of the release from a debt obligation. It is one of the methods by which parties to a contract may terminate their agreement.

When we combine these two concepts, it can produce excellent results. This is how you can send an agreement for compromise of a debt and below is how much you should agree to send.


Sample Settlement Agreement

______________ (creditor’s name), referred to as CREDITOR and ____________ (your name), referred to as DEBTOR, agree to compromise the indebtedness as between them.

CREDITOR, hereby agrees to compromise the indebtedness due the CREDITOR on the following terms and conditions:

The CREDITOR and the DEBTOR agree that the present debt due is $____________ (the amount of the debt). The parties agree that the CREDITOR shall accept the sum of $______________ (the amount of the settlement) as full payment on the debt. The acceptance of the payment will serve as a complete discharge of all monies due. The payment shall be made in ___________ (note the form of payment).

In addition, upon accepting of the $__________ (amount of the settlement), the CREDITOR will notify all Credit Reporting Agencies that account is PAID AS AGREED, and delete any entries showing this account as ever being late.

This compromise is expressly conditioned upon the payment being received by ________________ (date that payment is to be made). If the DEBTOR fails to pay the compromised amount by ______________ (date that payment is to be made), the original amount owed by the DEBTOR will be reinstated in full, and immediately due.

This Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns.

Dated: _______________

Signature: ______________________________

___________________ (Creditor’s name)


Signature: ____________

___________________ (Your name)



How much to send?

Here is the rule of thumb: If the debt is under 1,000 cut the amount it in half. e.g. $500. If the debt is in the thousands you can send them 1/3 of this amount .33.  This is statistically acceptable base on risk factors.

VERY IMPORTANT: Make sure you write on the church or money PAID IN FULL and this is very important.

The higher the debt amount,  the harder it is to pay that amount. Therefore there is a calculated risk that repayment never happens or drops off sharply.  One can come up with $400 easily than paying  $2,500.  If you own a company $800 and settle for $400, it is easier to pay. But if you owe a company $5,000 paying half is difficult but paying $1650 is much easier.