Debt Settlement – What Percentage of a Debt is Typically Accepted in a Settlement?
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I’m often asked by subscribers, “What percentage of a debt is typically accepted by creditors if I do debt settlement?”
Below is a current and accurate list of the actual average settlements for industry leading debt settlement companies and law firms negotiating unsecured debt.
First, let me provide a few important keys about your situation that will determine what you can expect to settle for:
1) “Who” your creditor is.
Who your creditors are makes a huge difference in the amount of the average settlement and what you should expect. Certain creditors are aggressive and you will simple need to pay more than you would with other creditors. These “aggressive” creditors change over time, and also behave differently depending on your state of residence.
2) Your “payment history”.
Your payment history is a very important part of your credit. However, the difference between a perfect payment history (never reported 30 days late / no derogatory items) and missing your VERY FIRST PAYMENT is the biggest difference.
It’s as if missing that first payment knocks your score out of the sky, but then each additional late payment has less and less of a negative affect.
If you are current on your debt, then you have virtually NO chance of settling for less than the full balance. If you want to settle your debts for less than what you owe, you must be behind on the debt. Being current on significant unsecured debt “undermines” the negotiation process for delinquent debts you are attempting to settle.
If you are behind on a debt you are attempting to settle, but you are current on other significant unsecured debt (with balances of $500+), then the creditor you are behind on and negotiating a settlement with may see you are current, paying 100% of what you owe PLUS interest to another creditor and will be unwilling to settle for a low amount or possible at all. Thus, you should be behind on ALL unsecured debt in order to successfully settle your accounts for the low amounts I am about to list.
Exceptions: You may remain current on certain types of unsecured debts without harming your negotiations. The exceptions include Federal Credit Unions and military accounts.
While good settlements can be made after only 30-90 days past due, we usually get the best settlements AFTER an account is “charged off”, usually after 180 days late, and especially when it’s then sold to a third party debt collector.
A “charge off” is an accounting term that means the creditor is taking a tax-break on the account as “bad debt”. This devalues the account, and the creditor begins to “get in the mood to settle”. Once this happens, if you have a lump sum in the amount listed below, you can most likely settle.
Often, creditors sell the account to a third party debt collector after it has been charged off and lost value. The average amount paid for “bad debt” in recent year is $0.034 of the balance owed. That’s 3.4 cents on the dollar.
3) Legal status.
Lawsuits are always a risk when attempting debt settlement. Within one year of the statute of limitations (3-10 years, depending on your state) lawsuits are rare, typically occurring in about 2-5% of accounts held with reputable firms. Over half of these cases are settled BEFORE going to court because clients have funds available to settle. AFTER a summons is received and BEFORE the court date (usually a 30 day window) is an opportunity to settle because the creditor will usually want to settle and avoid the additional cost and risks involved in suing you. You may often get better than average settlements ahead of a lawsuits. Thus, legal action can be seen as a settlement opportunity if you have funds available to settle.
When you offer the amounts listed below… it’s a smokin’ deal to the creditor or collector. A win-win-win deal for all.
Now with these key factors in mind, take a look at what professional negotiators at top debt settlement companies are currently seeing:
(Description of Debt / Estimated Payback %)
- Credit Cards, Department Store Cards 40%
- Citibank Accounts 65%
- Discover Accounts 65%
- Cell Phones (Collections over $750) 50%
- Apartment Lease Re-letting Fees 40%
- Medical Debts, Collections 50%
- Judgments/Garnishments, Repossessions 80%
- Pay Day Loans, Signature Loans 40%
- Collection Balance Greater than $750 Settlements 40%
- Collection Balances Under $750 Settlements closer to 85%
- Debts between $750-$1,000 60%
- Debts under $750 80%
* These are “typical” results, actually slightly “padded”. The best negotiators have even better percentages on average, but these numbers represent reputable, although rare, professionals as a whole.
** The circumstances of your financial hardship play a huge role in negotiations.
These numbers are also for professional negotiators representing many clients who may have millions of dollars in debt owed to a creditor in negotiations at once. You should not expect these numbers on your own, but many of my subscribers have reported much better (non-typical) percentages, as low as 10% with major creditors.
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