How do you negotiate credit card debt for less?

The percentage of a debt typically accepted in a settlement is 30% to 80%. This percentage fluctuates due to several factors, including the debt holder’s financial situation and cash on hand, the age of the debt, and the creditor in question. The debt settlement company you decide to work with plays an important role, too.... read full answer

For example, National Debt Relief has been able to settle debt for as low as 30% of the original balance, but could charge fees as high as 25% of that original balance. Additionally, while Donaldson Williams may reach a settlement as high as 60%, their fees are low at 17%. A few of the highest ranking debt settlement companies are listed in the table below.

Percentage of a Debt Typically Accepted in a Settlement:

The percentage of a debt accepted in a settlement depends on:

Your financial situation. In the process of negotiation, creditors will try to ascertain your financial situation and amount of cash on hand. Greater disposable income and available cash will generally lead to a lower percentage of forgiven debt. This makes sense; creditors want you to pay off as much debt as you can. It would be hard for you to make a case that your debt should be written off when you have the means to pay a decent portion of it.

How old the debt is. The older your debt is, the more likely it is that creditors will regard it as uncollectible. When they view debt as uncollectible, they’re more likely to accept a favorable settlement percentage. For them, getting some of the debt back is better than nothing. It’s important to note that while an older debt increases the likelihood of a favorable settlement outcome, it comes at the expense of your credit. You can read more about how debt settlement hurts your credit in our guide.

The creditor. During the debt settlement process, you will negotiate with either your original creditor or the collection agency assigned to your debt. If your account is over 180 days past due, you’re more likely to interact with a collection agency. Neither party has an obligation to settle debt, so whom you negotiate with plays an important role in the ultimate settlement percentage. It’s a good idea to do some research on the party handling your debt before beginning negotiations. You’ll learn more about their approach to debt settlement and others’ experience with them. The Better Business Bureau is a good resource for your research.

Bottom Line:

The typical percentage of debt accepted in a settlement depends on the debt settlement company you decide to work with (if any), your finances, amount of debt, and creditor. There’s nothing you can do to change your financial situation, but you can tailor your approach to the negotiations.

Before negotiations begin, use the credit card(s) in question only for essentials and attend a credit counseling session to learn about your options. This will show the creditor that you are acting in good faith and only pursuing debt settlement as a last resort. This will go a long way in improving your chances for a more favorable debt settlement.

Yes, Capital One does accept debt settlements, either directly or through a collection agency. You can refer to the most recent notice you’ve received and reach out to that party to begin the negotiation process for an amended payment agreement.

If your account has not charged-off, Capital One offers a few options to improve your financial situation. Charge-off occurs when your creditor writes your debt off as a loss (generally after a few months of missed payments) and passes it on to a debt collector. If you are interested in their ... read full answerdebt management plan, Capital One will waive late fees and reduce your monthly payment and interest. You can pursue this option by calling customer service at 1-800-227-4825 or by chatting online.

If this option does not interest you, you may ask for a debt settlement. Prepare your answers for questions related to income, expenses, and your inability to make minimum payments. Settlement is more likely if you can prove financial hardship.

If your Capital One debt has been sold, you will need to reach a settlement with the collection agency in charge of your debt. Before reaching out, research the settlement process with that particular agency so you’ll have an idea of what to expect. Settlements will vary based on the age of the debt, your available cash, and any financial hardship, among other factors, but you can probably expect to settle for about 30% - 50% of the original balance.

Once your debt has been settled, your work toward a bright financial future has just begun. In order to avoid unmanageable debt in the future, try to incorporate good financial habits into your spending and savings goals. Create a budget that allows you to live within your means and pay your monthly bills on time. With good habits in place, you can expect to see your credit recover in 1 – 2 years.

Debt settlement is worth it when a fair settlement can be reached quickly, allowing the borrower to satisfy their obligation for less than the full amount due by making a lump-sum payment that they can comfortably afford. It’s best if the borrower does not need a good credit score for anything important, such as a mortgage application, in the months that follow, either. But debt settlement involves an enormous amount of risk. There’s the risk that creditors won’t agree to a settlement, since they have no obligation to settle. There’s also the risk that they’ll sue the debt holder for payment.... read full answer

Only about 10% of debt settlement cases are successful. When a settlement can’t be reached, debt holders are still responsible for the entire debt, unless they pursue an option like bankruptcy. There are a few scenarios in which debt settlement may make sense and therefore be worth it, however.

When Debt Settlement Could Be Worth It:

When you’ve explored your options through credit counseling. If you’ve explored all your options for debt resolution through credit counseling and feel debt settlement is your best option, it could be worth it. A counselor at a credit counseling agency can use your financial documentation to present you options and develop a debt management plan. Since the initial consultation at a credit counseling agency is generally free, you really have nothing to lose.

These debt management plans are generally preferable to debt settlement, as they do less damage to your credit. An important exception is when you can’t afford the monthly payment under the plan. If that’s the case, debt settlement might be the better route to take.

When you’ve already missed payments. If you’ve missed payments, debt settlement could be worth it. You’ve essentially started the debt settlement process by allowing your accounts to become delinquent. It’s not wise to stop payments intentionally, as this lowers your credit score, but settlement could be a way to make the best of such a situation.

When the math makes sense. If you can save more in debt forgiveness than you spend in fees and taxes, debt settlement could be worth it. If you use a debt settlement company to negotiate with your creditors, make sure you have a clear understanding of their fee structure. Once you know how much of your debt will be forgiven, you can also estimate how much federal tax you might owe based on this portion.

When you have enough money to settle. If you have enough money to make an attractive settlement offer, debt settlement could be worth it. Since creditors have no obligation to settle, they will be more likely to agree to a settlement when you have enough cash on hand for a lump-sum payment.

When speed of resolution matters. If resolving debt fast is an important factor, debt settlement may be worth it. When comparing it to debt management and Chapter 13 bankruptcy, you can save at least a year when you pursue debt settlement. It’s important to note that Chapter 7 bankruptcy can resolve debt problems in 3-6 months, so debt settlement is less favorable in that matchup.

When you don’t mind damage to credit. If you don’t mind damage to your credit, debt settlement may be worth it. Credit damage is inevitable with debt settlement, first as a result of missed payments, and ultimately through the reflection of a settlement in your credit history. If credit damage does not faze you, debt settlement could make sense as a means to resolve your debt.

Bottom Line

Debt settlement is worth it when the risks and rewards align with your priorities. The process of debt settlement will send your credit into a nosedive and ruin your relationship with your creditors. You also risk getting sued and the creditor refusing to settle. On the other hand, you could potentially resolve your debt problems by paying a fraction of the amount owed. Compared to debt management, you could save years in time and thousands in cash. It all comes down to your circumstances.