This is a collaborative post.
One way to think of debt settlement is as a negotiation where both parties stand to gain something. Creditors and collections agencies would rather receive some payment on delinquent accounts than see them default and receive nothing at all. And borrowers who can’t necessarily afford to pay their debts in full would benefit from the opportunity to pay a percentage of that balance to have it resolved.
So, there are compelling reasons for both parties to want to “call it even,” so to speak. Though, as is true with any negotiation, it’s not always wise to accept the first offer presented to you. Knowing how to communicate effectively during negotiations can help you advocate for yourself as a consumer to hopefully reach a workable agreement.
Here’s more advice on how to respond to a debt settlement offer.
Decide Whether to Accept or Negotiate the Offer
How you regard a settlement offer depends on what came before it. Does it represent the end of a series of back-and-forth offers between you and your creditor? Or is it the first offer you’re receiving?
There is no magic number when it comes to settlement offers. They will typically depend on factors like how much you owe and how delinquent your account is. Creditors may be more willing to negotiate if they believe your chances of defaulting are high.
One bankruptcy attorney considers a settlement for “between 40 and 60 percent” good based on her experience in the industry. At the end of the day, the number you get depends on your situation. You are the only one who can decide whether you should accept the settlement or try to negotiate the creditor or collector down even more.
If you decide to attempt to negotiate for an even lower settlement, be prepared to provide both of the following:
- Demonstration of the financial hardships that are making it difficult for you to pay in full. For instance, a common reason for medical debt settlement is an illness or injury that has resulted in hospital bills and time off work. Other reasons may include job loss, divorce or death in the family.
- A reasonable timeline for repayment based on your budget. For instance, you may be able to offer a quick, one-time payment in exchange for a lower settlement.
Think of a settlement offer as a starting point, one you may choose to either accept as is or negotiate further based on the specifics of your situation.
Make Sure the Offer Is a Legitimate One
If a debt settlement seems to fall out of the sky just when you need it most, it may be too good to be true — or it may just be a creditor or collections agency trying to avoid you defaulting on your loan. It’s important to read the fine print and really take the time to distinguish between a legitimate debt settlement offer and a scam.
As the Consumer Financial Protection Bureau advises, it’s always important to learn more, especially if you’re unsure of exactly how much you owe to whom. For instance, you might receive a settlement for a time-barred debt already past its statute of limitations; by accepting the offer, you would actually be bringing that “zombie” debt back to life.
Always get offers and agreements in writing before you pay so much as a penny, too. It can be difficult to remember what is said over the phone and to determine the legitimacy of the offer without written proof.
How you respond to a debt settlement offer depends on your goals, but you can’t go wrong making sure the offer is legitimate, revisiting your budget and knowing how to communicate effectively with creditors and collectors.
