Start My Answer

What Percentage of a Debt is Typically Accepted in a Settlement?

Dena Standley | April 23, 2024

Dena Standley
Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: 40% to 60% is typically accepted in a debt settlement, but many factors influence the settlement amount, such as the age of the debt, whether you're dealing with a creditor or debt collector, and your financial circumstance. Improve your chances of settling for less with the help of SoloSettle

The balance reduction you receive when seeking settlement depends on whether you are dealing with a debt collector or the original creditor. But generally, the percentage accepted ranges from 40–60%, although it can go as little as 10% or high as 80%.

If you are dealing with a debt relief or settlement provider, you should factor in their charges, which may increase the overall amount. This article will explore the primary factors that affect the final settlement percentage accepted by a creditor, how settling debt affects your credit score, and steps to help you get the most favorable settlement.

Settle with SoloSettle

Make an Offer

How much do debts settle for?

Many consumers who are considering debt settlement ask this question. To find out the answer, we interviewed an attorney who specializes in debt settlement. Here's what we learned:

Debt settlements typically vary based on several factors such as the age of the debt, the amount owed, and whether the creditor is the original lender or a debt buyer. However, here are some basics on the typical percentage of debt accepted in a settlement:

  • 40% to 60% of the total debt is a typical settlement amount. However, it's not uncommon to settle for as low as 10% to 30%, especially if the debt is older or if it's been sold to a debt buyer.
  • Start with an offer below 50% of the total debt, which will give you room to negotiate. Offers less than 10-20% might not be taken seriously.
  • Settlements with debt buyers might be lower than with original creditors. Debt buyers often purchase debts at a reduced cost, so they may accept a smaller amount.
  • Debts can settle for a reduced lump-sum payment or for payment plans. These plans may involve an initial upfront payment followed by monthly installments.

The ideal settlement amount and strategy can vary, but generally, starting with a lower offer and being open to negotiating payment plans can help you in your debt settlement journey.

To learn more, check out our full interview with an attorney on how much to offer to settle a debt:

Now, let's explore some of the factors that lead to a successful debt settlement.

What factors affect your settlement percentage?

Different creditors demand different percentages to settle a debt. Every situation is different. The following factors separate one consumer's settlement percentage from another.

The “age” of your debt

The longer the period from your last debt payment, the higher the chances a creditor will agree to a lower settlement percentage. The idea is that they would rather receive a small percentage of the debt owed than get nothing at all. Even though delaying paying your debt for longer may help you get a favorable settlement, your credit score pays the price because it tends to drop even further than someone who defaulted for a shorter period.

The creditor involved

As you seek to settle, you will deal with the original creditor or a third party (collection agency). You are more likely to deal with a debt collection agency when you fail to pay your debt for more than 180 days, and your original creditor assigns or sells it to them.

Generally, it's easier to negotiate debt settlement with debt collection agencies, because often they have purchased your debt portfolio at a discounted rate and will still make a profit if you only pay off a portion of the debt amount.

Your financial situation

Once you make your settlement request and start the negotiation process, the creditor may investigate your financial situation to gauge your finances and whether they are likely to get a higher percentage than initially offered. The creditor may be less likely to take a lower percentage if you have a significant disposable income and some available cash. The creditor aims to get you to pay as much of the debt as possible and not seek a way out, yet you have a means to pay a higher percentage.

How will debt settlement affect your current credit score?

Debt settlement has helped countless consumers get out of debt. However, you need to prepare for its negative impact on your credit score. However, if you’re at the settlement stage, your credit score has likely already taken a hit. Your payment history and other crucial factors play a role, as shown in the table below.

Credit Score Calculation
FICO Category FICO Score %
Payment history 35
Amounts owed 30
Length of credit history 15
New credit 10
Credit mix 10

You'll notice that your payment history carries the highest percentage. So, settling debt is better than failing to pay it. The impact on your credit score due to debt settlement is less severe than that of defaulting completely.

Steps to settle debt and get a favorable percentage

Getting a favorable settlement percentage requires planning how to approach the situation. The following are the steps to take:

  1. Confirm your debt and ensure you have all the information, such as the creditor handling the situation, the type of debt, and the entire amount you owe. Send a Debt Validation Letter to force the creditor to confirm the debt.
  2. Review your financial situation and determine how much money you have to make a settlement offer. Ensure you have all your crucial expenses covered to avoid incurring new debt to cover expenses.
  3. Get in touch with your creditor by sending a letter to settle debt. Ensure you have researched the creditor and know your financial situation.
  4. If the creditor makes a counteroffer, increase your offering to a comfortable level you can financially sustain.
  5. Read through the settlement document you receive and ensure you understand the terms and conditions.
  6. After making the payments, follow up with the creditor to ensure they report your account as settled with the credit bureaus.

SoloSuit is your trusted partner in helping you get a favorable settlement deal. Our debt settlement tool, SoloSettle, helps you send and receive settlement offers until you reach an agreement with your creditor, ensuring you get a good deal and keeping your information safe.

Learn more about how SoloSettle can help you resolve debts from this success story.

FAQs about debt settlement

Now that we've covered what to expect when settling debt,

What are the pros and cons of DIY debt settlement?

While DIY debt settlement can help you save money and resolve debt, it definitely comes with its benefits and downsides. Let's take a look at some of the pros and cons of DIY debt settlement.

Pros:

  • It can help you save more money because you won't have to pay debt settlement fees.
  • You will have more control over communication with the debt collector or creditor to whom you owe money.
  • You might be able to reach an agreement faster through DIY debt settlement than working with a debt settlement company.

Cons:

  • You bear the burden of negotiating the debt.
  • You won't have the legal background and knowledge to protect yourself in the case of a lawsuit.
  • Creditors and debt collectors might not take your offer as seriously as an offer from a debt settlement company or organization.

Why is debt settlement considered a last resort?

Some say that debt settlement should only be considered as a last resort because of its negative impact on consumer credit scores. If you can pay off a debt in full, it's usually your best option to avoid damaging your credit. However, debt settlement is better than not paying a debt at all.

Is it better to directly ask for a manager or the financial relief department when contacting creditors?

If you're trying to set up a new payment plan or negotiate debt settlement as a result of financial hardship, it's best to ask for the financial relief department when contacting your creditor. Most banks and credit card companies offer financial relief programs for people who are experiencing unexpected life events and circumstance that lead to financial challenges.

Be proactive when working out your debts with creditors. Contacting your creditor's financial relief department before your debt goes to collections can help you protect your credit score and put you in a better position to resolve the debt terms that work with your budget.

What is the importance of getting the details of the settlement agreement in writing

It's important to get a debt settlement agreement in writing to protect yourself in case a creditor or debt collector changes their mind and tries to go back on their word. It's not uncommon for debt collectors to agree to settle and then file a default judgment in a debt collection lawsuit because no Answer was filed. Getting a debt settlement agreement in writing can prevent issues like this.

Remember, a settlement agreement is only valid if it is in writing.

What are the consequences of debt settlement on taxes?

Debt settlement is considered taxable income, so beware of the consequences of debt settlement on your taxes. Any amount that is forgiven is marked as income for that calendar year, and you will be responsible to pay taxes on that portion of your income.

What are some of the fees one might pay to a professional debt settlement company?

Most debt settlement companies charge up to 25% in fees for the services rendered. Before you sign up for a debt settlement program, be sure to understand the fees and how those costs will affect your ability to pay the settlement to your creditor.

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Guides on how to resolve debt with every debt collector

Are you being sued by a debt collector? We’re making guides on how to resolve debt with each one.

Resolve your debt with your creditor

Some creditors, banks, and lenders have an internal collections department. If they come after you for a debt, Solosuit can still help you respond and resolve the debt. Here’s a list of guides on how to resolve debt with different creditors.

Settle your medical debt

Having a health challenge is stressful, but dealing medical debt on top of it is overwhelming. Here are some resources on how to manage medical debt.

Guides on arbitration

If the thought of going to court stresses you out, you’re not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Stop calls from debt collectors

Do you keep getting calls from an unknown number, only to realize that it’s a debt collector on the other line? If you’ve been called by any of the following numbers, chances are you have collectors coming after you, and we’ll tell you how to stop them.

Federal debt collection laws can protect you

Knowing your rights makes it easier to stand up for your rights. Below, we’ve compiled all our articles on federal debt collection laws that protect you from unfair practices.

Get debt relief in your state

We’ve created a specialized guide on how to find debt relief in all 50 states, complete with steps to take to find relief, state-specific resources, and more.

Debt collection laws in all 50 states

Debt collection laws vary by state, so we have compiled a guide to each state’s debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Statute of limitations on debt state guides

Like all debt collection laws, the statute of limitations on debt varies by state. So, we wrote a guide on each state’s statutes. Check it out below.

Statute of Limitations on Debt Collection by State (Best Guide)

Check the status of your court case

Don’t have time to go to your local courthouse to check the status of your case? We’ve created a guide on how to check the status of your case in every state, complete with online search tools and court directories.

How to stop wage garnishment in your state

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in all 50 states.

Other wage garnishment resources

How to settle a debt in your state

Debt settlement is one of the most effective ways to resolve a debt and save money. We’ve created a guide on how to settle your debt in all 50 states. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

How to settle with every debt collector

Not sure how to negotiate a debt settlement with a debt collector? We are creating guides to help you know how to start the settlement conversation and increase your chances of coming to an agreement with every debt collector.

Other debt settlement resources

Personal loan and debt relief reviews

We give a factual review of the following debt consolidation, debt settlement, and loan organizations and companies to help you make an informed decision before you take on a debt.

How to repair and improve your credit score

Debt has a big impact on your credit. Below is a list of guides on how to repair and improve your credit, even while managing major debt.

How to resolve student loan debt

Struggling with student debt? SoloSuit’s got you covered. Below are resources on handling student loan debt.

Civil law legal definitions

You can represent yourself in court. Save yourself the time and cost of finding an attorney, and use the following resources to understand legal definitions better and how they may apply to your case.

Get answers to these FAQs on debt collection

How-to debt guides

Learn more with these additional debt resources

Contents