How Much to Offer for a Debt Settlement?


Creditors are willing to take settlement offers because they understand that they might not receive anything if a debtor files for bankruptcy. The average settlement amount is 47 percent of the balance. The amount you settle for depends on your negotiating skills and your comfort level.


  • Creditors have accepted settlements between 20 percent and 75 percent of your outstanding balance, so 20 percent might be a good place to start. Most creditors will not accept a settlement offer if you are not past due at least 90 days. If a creditor counteroffers, don't hesitate to make a counteroffer of your own or tell the creditor you need a couple of days to think the offer over.

    Once you agree to a settlement offer, make sure the creditor or debt collector sends you the offer in writing, because some debt collectors might try to collect the remaining balance years later. Your written documentation is proof that the debt has been settled and paid in full according to the established terms.

Tax Consequences

  • When you settle some debts, there are tax consequences; you might have to report the forgiven debt as taxable income. If the creditor sends you a 1099-C, which is a debt-cancellation form, contact a tax professional for advice.

    There are two exceptions to taxation. If you are insolvent, which means your liabilities exceed your assets, or if you filed a petition for bankruptcy, you may not have to report the settled debt as income.

Credit Report

  • A settled debt can remain in your credit file for seven years, and your credit score can be lowered as a result. As part of the settlement offer, you may want to negotiate with the debt collector and see if the derogatory information can be removed from your credit file. Make sure this part of the agreement is in writing as well.


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