What are settlement letters to creditors?

Settlement letters to creditors are letters sent by a consumer to a lender with whom they have a past due account. The purpose of the letter is to offer a lump sum payment to settle the account and stop any further collection.

A settlement letter generally includes an amount that is less than the total balance owed to the lender. Examples of debts that may be settled include medical bills, personal loans, credit cards and any other unsecured debts. Secured debts can be difficult to settle, as these types of debt generally have an item that is considered collateral that could be seized if a default occurs.