What Percentage Should I Offer to Settle Debt?
If you’ve considered a debt settlement before, you may be wondering, “What percentage should I offer to settle my debt?” While there is no one-size-fits-all answer to this question, there are a few guidelines that you can follow to help you come up with a number that works for you. In light of that, we have created a resource on debt settlement below. Read it over to get a clear understanding of what factors creditors consider when negotiating a debt settlement and what percentage you should offer them.
What is a debt settlement?
Debt settlement generally involves contacting your creditors and asking them to accept a lump-sum payment in exchange for considering your debts settled. Typically, this lump sum payment is worth less than the total of what you currently owe.
Like any other financial decision, the decision to settle your debts comes with its pros and cons. On the one hand, if you choose to settle your debt, there’s a good chance that you will get away with paying less than you owe, and your settled account balances will be brought to zero, which means your creditors will stop calling.
However, on the other hand, it’s important to note that settling your debt can hurt your credit score. Although it is hard to quantify how much of an impact settlement will have, Debt.org estimates that a debt settlement can lower your credit score by about 100-125 points if you have stellar credit to start. Still, settling your debt will likely have less of a negative impact than leaving your accounts delinquent and possibly facing debt collection or lawsuits from creditors.
What factors are considered when settling debt?
If you’ve gone over the pros and cons of settling your debts and decided that it is the right move for you, the next step is to better understand what factors are considered in a debt settlement. Knowing what matters to your creditors will give you a leg up when deciding how much to offer for your settlement. In light of that, we’ve taken a closer look at these factors below.
Your overall financial situation
The first thing that a creditor will want to look at when negotiating a debt settlement is your overall financial situation. In particular, the creditor will likely want to verify how much cash you have on hand and look at your hardship or what brought you to need to settle your debts. (Note this is not an easy process and understanding what to say to a creditor is often best left to those who are experts in settling debt like a debt solutions attorney.)
In this case, the creditor will be more likely to settle for a smaller portion of your debt if you can prove that you are going through a period of financial hardship. Likewise, if it looks like you have plenty of money coming in each month and your debts are mostly the result of extravagances like shopping trips or going out to eat, your creditor is probably going to be less willing to strike a deal with you.
The age of your debt
Next, creditors are also going to consider the age of your debt. In this case, they are more likely to consider making a settlement on older debts. After a certain point, creditors begin to consider old dead uncollectible. If they can collect a portion of that debt through a settlement, in their minds, it will be better than not collecting anything at all.
However, if your debt is relatively new, it’s less likely that your creditors will be willing to accept a settlement. At this point, they are more likely to assume that you will keep making payments to keep your credit score as high as possible.
It’s also important to take who you are negotiating with into consideration as well. If your debt is less than 180 days old, you will likely be negotiating with your original creditor. However, it’s more likely that you will be dealing with a collection agency beyond that point. In either case, each entity will likely have its own rules and regulations around negotiating debt settlements.
With that in mind, it’s a good idea to do some research into who you’ll be negotiating with before you make the call. The Better Business Bureau (BBB) is a good place to start gathering that information.
There are resources to assist you if this is overwhelming to you, which is understandable since you may not know what to say to a debt collector. Do your research to find what debt solutions might be best to help you achieve your goal to settle your debt. Note that not all debt can be settled. Each creditor has different rules when settling debts for less than the amount owed. This can be very confusing to the average consumer looking to settle their debt for less than what is owed.
What percentage should I offer to settle debt?
Last but not least, it’s important to answer the question of how much a debt collector will settle for. While there is no hard and fast rule for debt settlements, they’re typically settled based on a percentage of the overall amount you owe. For example, the National Foundation for Credit Counseling (NFCC) reports that the typical credit card settlement percentage is worth about 40%-50% of your total debts.
However, depending on the creditor, the type of debt, the amount you owe, and your circumstances, this can change and vary. There is no set amount to settle your debt with collection agencies or debt collection law firms.
Still, it’s crucial to remember that your debt settlement offer is just a starting point when negotiating. No creditor or collection agency is required to settle with you, which means they may come back with a higher number or refuse to settle the debt at all. That’s part of why it’s a good idea to have a professional in your corner as you undertake this process.
The bottom line on settling debt
Settling debt is often thought of as a last resort. However, if you are truly having trouble keeping up with your debts, it is certainly an option worth investigating. With that said, now that you have a better idea of what percentage a collection agency will settle for, the next step is to figure out whether debt settlement is right for you. You can then decide whether your situation is best left to a financial professional so you can be sure you’re getting the best possible solutions to resolve your debts.
If you are ready to talk to someone about your debt settlement options, get in touch with Tayne Law Group today, which has been settling debts for over 20 years and have won many awards. Reach out at (866) 890-7337, or fill out our short contact form, and we’ll respond as soon as possible.