Most successful debt liquidations will reduce your debt by 30 to 50%, but the amount you can offer depends on factors such as your unique financial situation. If you're struggling with the burden of high-interest debt, liquidation can be a valuable tool for recovering, but it's not something you should rush into blindly. Most successful debt settlements will reduce your debt by 30 to 50%, but the amount you can offer depends on factors such as your particular financial situation, creditor policies, and the level of late payments. While a debt settlement can alleviate some of your pressure, there are risks and disadvantages you should have take into account.
Debt settlement can provide you with some financial relief in the short term, but it can also affect your credit rating and make it difficult to obtain financing in the future. Debt settlement companies will ask you to suspend payment to your creditors while they negotiate on your behalf. Your payment history is the most important component of your credit score; if you don't pay off debt, your credit rating will decrease. And with a lower credit score, you may only qualify for loans with high interest rates, if you qualify. A “good debt settlement percentage” could range from 30 to 50% of the original debt.
However, this can vary depending on factors such as the age of the debt, the borrower's payment status, and the creditor's willingness to negotiate. In general, you should start by offering between 20 and 30% of the debt as a single payment (assuming you can afford this amount). This low starting point gives you room to negotiate and, at the same time, shows that you are serious about resolving the debt. Be realistic and base your offer on what you can afford.
For example, the National Foundation for Credit Counseling (NFCC) reports that the typical credit card debt settlement percentage is between 40 and 50% of the total amount. Original creditors usually expect higher liquidations, between 50 and 75% of the total balance, especially in the case of lump sum payments. Always start the offer instead of waiting for the creditor, as your starting position is usually to wait for full repayment. Usually, a liquidated debt will remain on your credit report for seven years from the date the account first went into default.
Debt settlement companies usually ask you to make regular payments to deposit them in an account similar to an escrow that will be used to pay the creditor. If you can afford it, proposing a lump sum settlement is generally the best option and one that most debt collectors will readily accept. When you settle an account with a lender, it will remain on your credit report for about seven years and will negatively affect your credit rating. And if you're not sure if negotiating settlements is appropriate for your situation, an attorney can review all of your options and advise you on specific circumstances.
Knowing what matters to your creditors will give you an advantage in deciding how much to offer for your settlement. Now that you have a better idea of what percentage a collection agency will settle for, the next step is to determine if debt settlement is right for you. Debt settlement is an agreement between a lender and a borrower that usually consists of a large, one-time payment to cover an existing balance. Last but not least, it's important to answer the question of how much a debt collector will settle for.
You just want to maximize your return, which can be a percentage of what you raise or whatever you can raise for every penny of the dollar you paid for the debt. Consider starting debt settlement negotiations by offering to pay a lump sum of 25% or 30% of your outstanding balance in exchange for debt forgiveness. If you need help preparing a settlement proposal, get Nolo's electronic offer form to settle a debt with a reduced one-time payment.