What Percentage Of Debt Is Typically Accepted In Settlement?

Last Updated: April 07, 2024

Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.

When facing overwhelming credit card debt, many people consider debt settlement as a viable option to reduce their financial burden. However, understanding what percentage of debt is typically accepted in a debt settlement can be confusing and varies significantly depending on numerous factors.

This guide aims to demystify the process of debt settlement, offering you a clear perspective on what to expect when negotiating your credit card debts. Whether you're contemplating negotiating on your own or through a debt settlement company, we'll provide you with the essential information to make informed decisions and navigate your way towards financial relief.

If you'd like to skip the article and speak to a debt specialist, get a free consultation today.

Debt settlements

First, we need to have an understanding of what debt settlement is. Basically, in debt settlement, you or a debt settlement company will work with a creditor to decrease how much you owe the creditor. You will make debt settlement offer to the debt collector. Once the debt is settled, you usually make a lump sum payment to the debt collector. Sometimes, a creditor will allow a payment plan.

If you are working with a debt settlement company, you will stop making payments on your enrolled debt. You then make monthly payments into a savings account. The savings account is held at an FDIC insured financial institution.

Once a settlement agreement is reached with the debt collectors, the savings are used in a lump sum payment on your debt.

Debt settlement companies usually deal with unsecured debt like credit card debt and the more debt you have often the sooner your settlement proposal is accepted.

The debt settlement process takes up to four years, depending on your financial situation and how much of lump sum you can set aside each month.

Debt settlement does have some downsides that you need to understand before agreeing to debt settlement program or attempting DIY debt settlement.

Credit reports

There will be an effect on your credit score. When you stop paying your debt, your actions are reported to the credit bureaus. Unfortunately, it is a necessary step to convince collection agencies that you are serious about settling.

Once your delinquent debt is paid, it is marked 'settled in full.' Paying the debt helps your score, but the 'settled in full' doesn't look good. Notifications of debt settlement stay on your credit report up to seven years, although you can ask to have it removed.

As long as you don't take on more outstanding debt or have a lot of missed payments, your credit score and credit report should recover and even improve.

Tax liability

Debt settlement may have a tax consequence. The difference between what you owe and what is settled is considered by the IRS as taxable income. As a result, you will pay taxes on that difference. Because this can be unexpected, it can cause financial hardship.

Speak with a financial advisor like a CPA to understand your tax liability and if you can afford the financial burden.

Other debt solutions and ways to reduce debt

There are several options other than debt settlement companies that may fit your situation.

Credit Counseling

If you are not significantly behind and not in debt collection, consider a nonprofit credit counseling agency. They may set up a debt management program possibly with monthly payments that will help you get a handle on your debt without going through debt settlement. Credit counseling agencies often require a debt management program.

Debt Consolidation

Debt consolidation is a debt relief program that involves getting a loan to pay off many of your debts. A zero balance credit card can be used to pay off credit card debt. You may be enrolled in a debt management plan to help control future debt. Debt consolidation does not involve debt settlement and you pay the full amount of the debt.

If you'd like more information read our article on debt relief solutions like credit counseling and debt consolidation.

4 Factors That Affect Your Credit Card Settlement Percentage 

There are several factors that affect how much of your debt will be accepted. These include how much debt you owe, the creditor, your payment history, and the age of the debt. Since they are so important, let's take a look at each factor individually. 

• How much debt do you owe?
• Who is the creditor?
• What is your payment history?
• How old is your debt?

Factor 1: How Much Debt Do You Owe?

Unfortunately, the more you owe, the better a candidate for debt settlement. Most debt settlement companies require you to have a minimum of $7,500 to $10,000 in unsecured debt including credit card debt. If you have much less than those amounts, the creditor may assume that you can pay and refuse to consider a settlement offer. 

Pacific Debt, Inc generally sets the debt amount at $10,000, although circumstances vary. If you have less than $10,000, we will refer you to a trusted partner who specializes in lower debt amounts. For more information, give one of our debt specialists a call. 

Talk to a debt expert for FREE! We can help you understand all your options.

Factor 2: Who is the Creditor? 

Another factor in debt settlement is the original creditor. Some are willing to negotiate while others will refuse regardless of your circumstances. Others will look at your state of residence, home ownership status, and employment in determining how much to settle.

A good debt settlement company knows which original creditor is likely to settle and what percentage they typically settle at. This gives additional negotiating power to the debt settlement company. 

Pacific Debt has an excellent track record in working with creditors in many states. We will do our best to get you the best settlement possible and help you save money.

However, for more aggressive creditors, settlement percentages may vary or they may be less inclined to accept settlement funds in installment payments. In this case, you must be prepared to make a lump sum payment.

Contact us today to enroll in our debt settlement program. Our debt experts can explain to you exactly how our program works.

Factor 3: What is Your Payment History?

Creditors look at your payment history to determine the odds that you will eventually repay them in full. This means that the farther behind you are in payments, the greater the likelihood that you will not pay your debt in full. At that point, the company must decide whether to turn your account over to collections or take you to court. 

In order to settle for substantially less than you owe, you must be behind on most of your unsecured debts over $500. Otherwise, the creditor will see that you are paying off loans at 100% plus interest and may not be willing to settle.

Once you enroll with Pacific Debt, Inc as a client, you will be making the decision to stop paying on all your unsecured debts, if you are not behind already. This will likely result in a decreased credit score, but if you are looking at debt settlement, your credit score is probably already negatively affected.

Your credit score may improve as your program progresses assuming you continue making payments on debts outside the program such as secured debts. Since each consumer's situation is unique, no debt settlement company can accurately predict how high or low your credit score is likely to climb or fall.

Factor 4: How Old Is Your Debt? 

The final factor is the age of your debt. Generally after 180 to 270 days (six to nine months) creditors will “charge off” your debt by transferring your debt to a collection agency. As your debt approaches the 180 day deadline, creditors may become more willing to settle. If they sell a debt to a collections agency, they receive only pennies on the dollar. Offering to pay back more than they can sell the debt for can encourage a creditor to settle.

If you have debt that is in collections, the collection agency is interested in clearing their books and will often settle.

If the debt is very old and that age is set by your state's statutes of limitations, you may not be required to pay off this debt at all. Statutes of limitation on credit card debt is generally between three and ten years, but ALWAYS check with your state for exact information. 

Zombie debt is aged-out debt that is being sold between collections agencies and pops up in debt collection demands. Always verify that the debt is yours and the age of the debt before making payments.

Credit Card Debt

Credit card debt and credit card companies are leaders in helping create debt that people need settled. If you have excessive credit card debt, we have probably worked with your credit card company and have reached a debt settlement agreement with them.

You may want to talk to your credit card issuers about ways to decrease your interest rate or change your payment date to make it easier to meet.

Actual Examples of Debt Settlement Percentage Results with Pacific Debt

Pacific Debt, Inc has a proven track record in settling debt for our clients. We have settled more than $300,000,000 in debt since 2002. We have also worked with a vast array of creditors.

The table below lists some of the creditors we have settled with and work with regularly. The 2018 YTD numbers are based on the current value of accounts at the time of settlement

Just remember that everyone's financial situation is different and percentages may vary.

Real People, Real Results - Reduce Your Debt Settlement Percentage Today!

Below are some real accounts by real Pacific Debt, Inc clients. Each one was overwhelmed by debt and has unique reasons to consider debt settlement. Pacific Debt was able to help them settle their debt and to move on with their lives. The settlement percentages below do not include settlement fees paid to Pacific Debt. 

Kelvin, a San Diego insurance worker, originally owed $82,120.59 to seven different credit cards. Because he works on commission, his income varies every month. With Pacific Debt's help, Kelvin settled debt on all seven accounts for $28,823.26. His payoff averaged 35% overall seven, with the highest percentage at 50%.

Filippo, from Los Angeles, recently divorced. He wanted to use the proceeds from the sale of the marriage home to settle two debts totaling $21,422.12. Pacific Debt helped him settle for $9,482.00 or an average 44% payoff. His highest percentage payoff was 64%.

Leslee, a self-employed San Franciscan, was out of work for medical issues. She owed $9,840.54 on two debts. After working with Pacific Debt. she was able to settle both debts for 60% or $5,922.55. The highest payoff was 80%.

Debt settlement company

If you have more than $10,000 in unsecured debt and are having trouble making minimum monthly payments, you may be a great candidate for debt settlement.

If you would like to review your situation with a debt settlement company professional, give us a call. We'll explain all your options.

If you choose debt settlement, getting started with Pacific Debt, Inc is simple. Just give us a call at 1-800-909-9893 or fill out a quick enrollment application online. We will review your information and discuss with you your options. Since the debt holder's financial situation is unique, debt settlement may not be in your best interest.

From that point, you may enroll, be transferred to a trusted debt relief company or decide to follow another course of action. No matter what you choose, you will have solid information to work with and you can improve your financial future.

Is debt settlement worth the effort? It can be very worth it if you are willing to put in the time and effort to reach your goals and learn debt management. On the bottom line, debt settlement is better than bankruptcy.

If you still haven't made up your mind, follow the Pacific Debt reviews link for more real client reviews. We are leaders in debt settlement negotiations and should be able to help you reach a debt solution that fits your needs.

Accreditations and rating

We'd like to mention a very important part of finding your debt settlement company. Take a look at their accreditations and ratings. Ours are worth bragging about!

• Accredited by Better Business Bureau with BBB A+ rating(4.79 rating and 144 reviews)
•  US News and World Reports and Bankrate ranked Pacific Debt as one of “The Best Debt Settlement Companies of 2020”
•  4.8 star rating by BestCompany.com (over 2341 client reviews)
•  4.8 star rating by TrustPilot based (over 718 verified consumer reviews)
•  ConsumerAffairs.com Accredited (over 538 verified reviews with an average rating of 4.6 stars)
•  A Top 10 Rated Company by TopTenReviews.com , ConsumersAdvocate.com and Top10debtconsolidation.com
•  4.6 star rating by Google (83 client reviews)
•  100% rating by SuperMoney (9 client reviews)

We are also accredited by the Consumer Debt Relief Initiative (CDRI) and the International Association of Professional Debt Arbitrators. As a professional debt settlement company, we are overseen by the Federal Trade Commission.

What to look out for in a debt settlement scam

When you are looking for a debt settlement company to work on settling your debt, look out for the following indications of debt settlement scams:

• Robocalls: Don't fall for a random call. You should initiate the contact after checking out the company's reputation.
  
• Guarantees: There are no certain settlements. A legit debt settlement firm will not make promises.
  
• Upfront fees: Charging upfront fees is actually illegal. Let the Federal Trade commission know if the debt settlement company wants an upfront fee.
  
• Fake Address: Check out the phone number and address to make certain they exist. If you can not talk to a live person, it is not a legit company.
  
• Nothing in Writing: If you are not offered written information or a contract, look for a difference company.
  

Little known government program

This is a big red flag! There is no government program to help you settle or pay debt in exchange for upfront or processing fees. There are government programs that will help with medical bills or utilities, but they do not charge fees.

Not explaining the consequences

Debt settlement comes with credit damage and tax consequences. If debt settlement programs do not explain that, this is a scam.

In addition, the company must disclose fees, conditions, terms of service , how long to get results, and how much you need to save in your savings account.

Lack of Accreditation

Always look for and then verify the company's accreditation. Look for accreditation with the Consumer Debt Relief Initiative (CDRI) and membership in the International Association of Professional Debt Arbitrators.

Disclaimers: Clients who make all their monthly program deposits pay approximately 50% of their enrolled balance before fees, or 65% to 85% including fees, over 24 to 48 months (some programs lengths can go higher).

Not all clients are able to complete our program for various reasons, including their ability to save sufficient funds.

Our estimates are based on prior results, which will vary depending on your specific circumstances.

We do not guarantee that your debts will be resolved for a specific amount or percentage or within a specific period of time.

We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services.

Our service is not available in all states and our fees may vary from state to state.

Please contact a tax professional to discuss potential tax consequences of less than full balance debt resolution.

Read and understand all program materials prior to enrollment.

The use of debt settlement services will likely adversely affect your creditworthiness, may result in you being subject to collections or being sued by creditors or collectors and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest. However, negotiated settlements we obtain on your behalf resolve the entire account, including all accrued fees and interest.

RELATED POSTS

• Pacific Debt Inc Rated One of the Best Debt Settlement Companies of 2020 (February 13, 2020)
• How To Build Your Credit After Debt Settlement (October 11, 2019)
• New Study Finds Debt Settlement Helps the Economy (September 24, 2019)
• How to Get Out of Debt Yourself (June 5, 2019)
• Letter for Debt Settlement Agreement (May 6, 2019)

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*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.