In order to pay off your credit card debt and other debts, you might consider getting assistance from a debt settlement company if you’ve fallen into financial difficulties.
Nonetheless, consumer protection specialists caution that it can be dangerous to ask a debt settlement company to negotiate your debt settlement. Regretfully, there are certain debt settlement firms that overpromise and underdeliver, which could put you back in the same financial bind you’re trying to get out of.
As an alternative, you can settle the debt on your own. In fact, DIY debt settlement may yield better results than relying on a debt settlement company. In part, that’s because professional debt settlement may be the costliest, least effective way to wipe out debt.
Are you drowning in debt? Feeling overwhelmed by the constant calls and letters from collection agencies? You’re not alone Millions of Americans struggle with debt, and many turn to collection agencies for help But what happens when you can’t afford to pay back the full amount? Is debt settlement an option?
The answer is yes, but it’s not always easy Negotiating with collection agencies can be a daunting task, and it’s important to understand the process before you begin In this guide, we’ll walk you through the steps of negotiating debt settlement, including how much collection agencies typically settle for.
What is Debt Settlement?
The process of negotiating with creditors to lower the amount of debt you owe is known as debt settlement. If you’re having trouble making your payments and you could end up in default on your loans, this can be a good option.
How Does Debt Settlement Work?
In essence, you’re asking the creditor to accept a lump sum payment that’s less than the entire amount you owe when you negotiate a debt settlement. In exchange, the creditor agrees to forgive the remaining debt.
How Much Do Collection Agencies Settle For?
A collection agency’s settlement amount varies based on a number of variables, such as:
- The type of debt: Some debts are more difficult to collect than others. For example, medical debt is often more difficult to collect than credit card debt.
- The age of the debt: The older the debt, the more likely the collection agency is to settle for a lower amount.
- The amount of money you owe: The larger the debt, the more likely the collection agency is to settle for a lower amount.
- Your credit score: Your credit score is a measure of your creditworthiness. The higher your credit score, the more likely the collection agency is to settle for a lower amount.
On average, collection agencies settle for about 48% of the original debt. However, it’s possible to settle for a lower amount, especially if you have a good credit score or if the debt is old.
Here are some tips for negotiating debt settlement with collection agencies:
- Be prepared to walk away. If the collection agency isn’t willing to settle for an amount that you can afford, be prepared to walk away.
- Don’t give up. It may take some time to negotiate a settlement, so don’t give up.
- Get everything in writing. Once you reach a settlement agreement, make sure to get everything in writing. This will protect you in case there are any problems later on.
Although it can be a difficult process, negotiating debt settlement can be a great way to reduce expenses and pay off debt. You can improve your chances of negotiating a settlement with collection agencies by paying attention to the advice provided above.
Additional Resources:
- Debt Settlement Negotiations: A Guide To DIY (Forbes Advisor)
- Negotiating With Collectors on Unsecured Debts (Nolo)
- How to Negotiate with Debt Collectors (NerdWallet)
Remember, you’re not alone in this. There are many resources available to help you negotiate debt settlement and get out of debt.
Find Out If You Qualify For Debt Relief
While a creditor may agree to accept any amount of your debt up to and including 2060 percent, it may go as high as 80 percent. The original creditor is likely to be looking for a higher percentage repayment. If a debt collector already has your debt, they might be more amenable to taking a smaller payment.
The Basics of Debt Settlement
Debt settlement involves negotiating with creditors to significantly reduce the amount of money you owe. With debt settlement, as opposed to other less dramatic methods of debt relief like debt consolidation or a debt management plan, you only have to pay back a portion of the principal you owe.
For example, let’s say you owe $5,000 to one credit card company and $5,000 to another. You are behind on both payments. The card issuers then choose to accept a lump-sum payment that represents 2050 percent of what you owe them in order to get at least some of their money. So, instead of possibly not getting a penny from you, each creditor receives a lump-sum payment of $2,500.
Negotiating With Creditors| Settle Debt With Debt Collectors | DIY Credit Repair Tips | LifeWithMC
FAQ
What percentage should I offer to settle debt?
What is the lowest a debt collector will settle for?
Is it bad to settle a debt with a collection agency?
How much should you negotiate with a debt collector?
What is the average settlement amount for a debt collection agency?
As a reference, the American Fair Credit Council states the average settlement amount is 48% of the balance owed. Of course, the terms of any agreement you reach with the debt collection agency will depend on your negotiation skills and the collector’s willingness to negotiate.
How much should a debt collector settle?
Some will only settle for 75-80% of the total amount; others will settle for as a little as 33%. Looking for a place to set the bar? The American Fair Credit Counsel reports the average settlement amount is 48% of the balance. Again, start low, knowing the debt collector will start high.
What happens if a debt collector asks you to settle?
If the debt collector realizes you need to settle, they’ll have the upper hand in the negotiation process and very likely demand that you pay the full amount. The best-case scenario is when the debt collector initiates the debt settlement process, but even if you’re the one making the first offer, stay calm and collected throughout the process.
How much should you offer a debt collection agency?
Debt collection agencies stand to make huge margins on the amount you owe, so don’t be afraid to offer less than 25% of what you owe. Why? Because the debt collector probably only paid 6 or 7% of your unpaid balance, so even if you offer to pay 25%, they’ll be making at least a 19% profit. Think of it this way. Say your outstanding debt is $5,000.