What Percentage Should I Offer to Settle Debt in 2024?

You have debt you can’t seem to eliminate. Debt settlement might be your answer.

Debt settlement allows you to pay a percentage of your debt in one lump sum. Once the creditor receives the money, they close your account.

Facing a Lawsuit? Respond While You Negotiate

Don't let a court summons derail your settlement negotiations. Answer the lawsuit properly to buy yourself time to reach a settlement agreement with your creditor.

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Settlement can save you money and stop harassment from debt collectors. You’ll get a financial refresh.

Some personal finance experts recommend trying other payoff methods first. Debt settlement can potentially damage your credit. However, the repercussions don’t last forever.

You’ll put the debt behind you and get a fresh start. The money you save can go toward other obligations or retirement savings.

Need help responding to a lawsuit while you negotiate? Our partner Solo can help you buy time to settle your debt.

What Is Debt Settlement?

Debt settlement is a process where you agree to pay off a debt for less. Individuals going through financial difficulty have better chances of settling debts.

When you suddenly stop paying your monthly bills, you’ll hear from your creditors. They may call you, email you, and send letters.

Your credit score will drop. At some point, your creditor may charge off your account and sell it to a debt collector.

Once you stop making payments for a significant time (usually longer than a year), your creditor becomes more willing to settle. You make a one-time payment and the creditor wipes off the remaining balance.

Debt Settlement Can Affect Your Credit

Debt settlement itself typically doesn’t hurt your credit. However, the time leading up to settlement does.

Consumers usually stop paying their bills if they intend to settle. As months go by, the creditor continues to report your non-payments. Your credit score drops.

If a creditor sells your account to a collections agency, the agency will likely report your debt. Your credit score takes an additional hit.

Between all the missed payments and dealings with debt collectors, you may damage your credit score by 160 points or more.

However, once you settle the debt, collection agencies stop their adverse reports. As time goes by, your credit score will slowly increase. You’ll obtain a fresh start without harassing phone calls and debt collection letters.

Can I Handle Debt Settlement on My Own?

Yes, you can handle debt settlement entirely on your own. You don’t need the services of a debt settlement agency.

However, you’ll want to do so methodically and with as much information as possible.

First, identify the debts you wish to settle. You may have only a single old obligation or multiple debts.

Determine the total balance you owe for each debt. Check where they are in the collections process.

Typically, older debts are easier to settle. If you haven’t made a payment in two or three years, it may have passed the statute of limitations. Your creditor will be unable to sue you and may be more willing to settle.

Once you evaluate the total amount of your obligations, start saving money each month. Build up funds to settle the balances of your accounts.

Example of DIY Debt Settlement

Jennifer owes three separate debts of $2,000 each. She hasn’t made any payments on the obligations in two years.

None of the debts have passed the statute of limitations. A debt collector has purchased them from the original creditor.

Jennifer has $3,500 in savings to settle the debts. All are owned by the same debt collection agency.

She contacts the agency about settling the debts entirely. Jennifer begins by offering $2,000 to settle all three debts, approximately 33% of the total value.

The debt collection agency considers the offer but determines it’s too low. They counter with a settlement for $3,000.

Jennifer agrees and pays the $3,000 immediately. The debt collection agency sends her notice of the entire debt settlement. All adverse credit reporting stops, and Jennifer moves on from her obligations.

It really can be that simple. However, debt settlement isn’t always easy.

Sometimes, debt collectors aren’t willing to accept low settlement offers. Having a fair amount in mind when negotiating with a debt collector is helpful.

What Factors Affect a Potential Settlement Amount?

The amount you offer to settle your debt depends on numerous factors:

Time since your last payment toward your obligation
Total of the debt owed
Whether your account is with the original creditor or a collections agency
How much you can afford to pay

Typically, creditors are more likely to accept a smaller percentage if your debt is older. If you haven’t made payments in years, your chances improve.

The value of your debt also plays a role in settlement offers. Debt collection agencies may be less willing to accept small compensation for debts of $500 or less.

Your original creditor may also be unwilling to accept a low settlement offer. If your debt hasn’t passed the statute of limitations and the creditor has proof, they may take you to court instead.

Finally, you can’t offer a settlement without having the money to do so. You won’t get far with a settlement offer if you have little savings. You may be better off attempting to set up a payment plan instead.

How Much Should I Offer to a Debt Collector?

When considering how much to offer, it largely depends on who you’re dealing with. Are they a junk debt buyer or the original creditor?

Settling With Junk Debt Buyers

For junk debt buyers, a low settlement could be around 10% of the total debt. More typically, offers between 30% and 40% are accepted, especially if you can pay in a lump sum.

Settling With Original Creditors

Original creditors usually expect higher settlements. Offers around 50% to 75% of the total balance are more realistic, particularly for lump sum payments.

Payment plans are an option but often result in paying more over time.

General Settlement Strategy

Propose a realistic plan based on your budget. Don’t overcommit to an amount you cannot afford.

Always initiate the offer rather than waiting for the creditor. Their starting position is often to expect full repayment.

Remember, all negotiations with your creditor or a debt collection agency should start small. You should anticipate that the collections agency will present you with a counteroffer. You want to have enough room to meet their demands.

The older your debt, the lower you can offer. Keep in mind how much money you have available to pay the obligation.

If you don’t have enough savings to settle your debt, then settlement may not be the right option.

Typical Settlement Percentages

You should typically offer 60% or less of your debt amount to kick off negotiations. The average debt settlement is reached at 50% of the debt value.

However, many factors can affect how much a creditor or debt collector is willing to accept.

Example of Negotiating a Settlement

When Mike gets sued by Encore Capital, he responds to the lawsuit to buy himself time. Mike investigates the debt, including the date of his last payment.

He checks the total amount owed, the statute of limitations in his state, and typical settlement amounts. After taking a close look at his finances, Mike sends a debt settlement offer of 50%.

After a few rounds of negotiating, Encore Capital agrees to settle the debt at 70% of the original amount. Even though Mike hoped to settle for less, he’s glad he can pay off the debt.

Facing a lawsuit and need to respond? Our partner Solo can help you answer the summons while you negotiate a settlement.

Should I Work With a Debt Settlement Agency?

Many debt consolidation and settlement agencies offer to handle negotiations on your behalf. Some can reduce the total amount of your debt by 50% or more.

However, every debt settlement agency charges a fee for its services. Sometimes, that fee may be as much as 30% of the total value of your debt.

With fees like that, you may only save 20% overall. Even if the agency reduces all of your debts by half, the fees cut into your savings.

Debt settlement agencies require you to follow a specific program. Typically, you’ll make monthly payments that they deposit into a savings account for you.

Once enough money accumulates, they’ll negotiate with your creditors one by one. Programs may last anywhere between two and four years.

Many debt settlement agencies refuse to work with individuals who don’t have multiple accounts. They also turn away those who owe less than $10,000 in debt.

If you’re dealing with a few accounts with low value, you’re better off handling the settlement process on your own. If you have the money available to settle them immediately, you may be able to pay them off.

Debt Collectors Don’t Have to Accept Your Offer

A debt collector is under no obligation to accept your offer. They may refuse if they believe they’ll be able to collect more by other means.

Debt collectors may also find your proposal to be too low.

If a debt collector refuses to accept your offer, try to set up a payment plan instead. While making monthly payments, build up your savings and attempt a new settlement offer in a few months.

As time goes by, creditors may be more willing to accept your offer. Especially if you can offer them more money.

Key Takeaways

Start your settlement offer at 60% or less of the total debt amount
Junk debt buyers typically accept 30-40% settlements, while original creditors expect 50-75%
Older debts are easier to settle than recent debts
Always have the lump sum available before making a settlement offer
Debt settlement agencies charge high fees that can reduce your overall savings

Frequently Asked Questions

What percentage should I offer to settle debt with a collection agency?

For collection agencies or junk debt buyers, start by offering 30-40% of the total debt amount. If your debt is very old or past the statute of limitations, you can start as low as 10%. Always begin with a lower offer to leave room for negotiation.

How much will original creditors accept to settle debt?

Original creditors typically expect higher settlement amounts than collection agencies. Plan to offer 50-75% of the total balance, especially if you can pay in a lump sum. They're less likely to accept low offers since they haven't sold the debt at a discount.

Can I settle debt for less than 50%?

Yes, you can settle debt for less than 50%, especially with junk debt buyers or for very old debts. Settlements as low as 10-40% are common with collection agencies. The key factors are how old the debt is, whether it's past the statute of limitations, and having a lump sum payment ready.

What happens if a debt collector rejects my settlement offer?

If a debt collector rejects your offer, you can try setting up a payment plan while you save more money. After a few months of making payments and building savings, you can attempt another settlement offer. Creditors often become more willing to accept offers as debts age.

How do I negotiate a debt settlement on my own?

To negotiate on your own, first determine what you can afford to pay in a lump sum. Contact the creditor or collector and offer 60% or less of the debt amount. Be prepared for counteroffers and have documentation ready. Always get the settlement agreement in writing before making any payment.

What Percentage Should I Offer to Settle Debt? Your Complete Guide