What Percentage Should I Offer to Settle My Debts
Debt settlement is a great way to take back your life and pay off your debt more quickly and efficiently. However, it’s important to approach this process properly: after all, you don’t want to spend too much or too little money and make it harder on yourself. For example, you need to answer the question “What percentage should I offer to settle debt?” accurately. Thankfully, our team at Goalry is here to answer all your debt-settlement questions to satisfy your needs!
What Is Debt Settlement?
Debt settlement is designed to help people pay off extensive amounts of owed money more effectively. It’s an agreement between the lender and the borrower that includes a large, one-time payment toward the existing balance. Once you make this payment, the rest of the debt is forgiven. As you can imagine, this is a fantastic option for people who are struggling to keep up with their debt payments. But why exactly would the lender agree to take less money?
Well, lenders may offer this option if they believe that a borrower isn’t likely to keep making payments. For example, some people may simply let their debts fall into collection without paying a dime. That means lenders are out the money they lent to that person. Rather than falling into that trap, lenders will often settle for less simply to get some compensation. The amount you can save will vary depending on your account and the lender.
What Percentage Should I Offer to Settle Debt?
The debt settlement process typically starts with the lender offering a specific percentage of their debt to the lender. We strongly recommend offering at least 25-30% of the debt to the lender when requesting debt forgiveness. So, if you have a $20,000 debt, that means you’d offer between $5,000 to $6,000 and must pay that lump sum to the lender. Now, we suggest that you start with this amount because the lender is going to come to you with a higher request.
Expect a Counter Offer
After your initial request, the lender may counter with a 60% settlement, which on a $20,000 debt means you’d pay $12,000. Don’t assume that this is the last word in your repayment! This process is a back-and-forth and requires you to work with your lender to haggle down your repayment to a level that satisfies both parties. As a result, many debt settlements typically get to about 50%, meaning on a $20,000 debt, you’d pay $10,000, and the rest would be forgiven.
Is Debt Settlement Right For You?
Are you struggling to handle your debt payments every month and feel like you’ll never catch up? Debt settlement right be an awesome option for you! If you can raise the money necessary for the down payment, you get this debt wiped off your account and can start free and clear again without worrying about it. Make sure you get a written contract about your settlement to ensure it’s legal and to avoid potential complications if the lender ever decides they want more from you.
Potential Risks
It’s also important to make sure that you understand the risks that may come with debt settlement. First of all, it will affect your credit score: it’ll stay on your account for at least seven years and can’t be removed before then. That said, it can free you up to start paying off other debts and minimize your monthly payments. Note that you may also experience some tax issues when settling debt. Why? Well, the IRS will consider the settled debt as income!
Why Debt Settlement May Affect Your Taxes
How? Let’s break this issue down quickly. Let’s say that you owe $10,000 to a credit card company, and you settle for $5,000. The IRS may consider the $5,000 removed from your account as money you “earned,” even if you don’t literally get that cash in your bank account. That frustrating situation may not happen to everyone who settles their debt, so make sure that you work with your lender and a tax expert before trying this approach.
Understanding the Debt Negotiation Process: A Step-By-Step Guide
Is debt settlement complex or difficult? Not necessarily: in fact, many people handle it over the phone in under an hour. That said, you should still understand every step involved to make sure that you’re not caught off guard at any point. Typically, debt settlement requires you to:
Start Saving Money Gauge the debt you’re going to settle and try to save up at least 50% of it. This process can be challenging if you’re struggling with payments. However, you can save money by cutting back on various expenses and doing what you can to streamline your expenses.
Begin NegotiatingTalk with the lender and send your initial offer to see how they respond. Note that most creditors will accept between 40-50%, though some may push for higher levels if they’re someone who purchased the debt as a collector. Talk with the financial relief department.
Cut a Deal Once you’ve reached an agreement with your lender, make sure that you get it in writing. Have them send you a contractor and sign it, with their signatures already on the contract. This helps give you more authority if they try to go back on the deal.
Set Up Your RepaymentTypically, you’ll either send a check for the full amount or set up a direct deposit with your bank account. In some cases, a lender may agree to a longer-term repayment plan on a settlement: this is rare, so plan on paying the full amount at once.
Now, we’ve mentioned the lender demanding more money from you after settlement twice now: does that mean that it’s likely to happen? No, not really. But you should protect yourself as much as possible from this danger. Your lender will be doing everything they can to cover their backs: you should do the same.
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Final Thoughts
When settling your debt, it’s important to ask far more questions than “What percentage should I offer to settle debt?” You also need to make sure that you’re ready to face the potential consequences of settling, such as credit score hits. You also need to pay attention to other options that may benefit you. Our team at Goalry can help you find a lender who understands your needs and who’s willing to help with your debt management process in a way that benefits you.