What Is the Lowest Amount You Can Ask for When Negotiating a Debt?

Overwhelming debt can sometimes be knocked down to size through negotiations with your creditors. Credit card companies and other lenders sometimes forgive part of the owed amount rather than take the risk of having you declare bankruptcy or just stop paying the bill. They usually want the agreed-upon total in a lump-sum payment, the University of Illinois Extension advises. No laws govern settlement amounts, so the exact discount is between you and your creditors.

Settlement Offers

Make a low settlement offer because your creditor may turn it down and respond with a counter offer. Start at 50 percent of the owed amount, the University of Illinois Extension advises, and be open to some back-and-forth negotiation. Offer below what you can actually afford to pay so you have room to negotiate without making your finances worse.

Collection Agencies

Debt collectors often accept lower offers for debt settlement than your original creditors because they pay pennies for charged-off accounts. The collection agencies make a profit even if you pay a small percentage of the original bill, and Bankrate writer Lucy Lazarony explains that collectors have an incentive to settle because they receive commissions. Offer 30 cents on the dollar, she advises, and get a written contract before paying anything if you reach an agreement.

Warning

You may incur tax liability if you make debt settlements with your creditors because the government considers forgiven debt over a certain amount as income and imposes taxes. Check with a tax preparer or attorney before going through the negotiation process for advice on how your proposed settlement amounts will affect your taxes if the lenders accept your offer. Typically, liability starts when a credit releases you from at least $600 of a debt, Bankrate writer Steve Bucci advises

Alternative

Debt settlement companies handle negotiations for you, but they charge fees that offset some of your savings. They typically offer 50 percent to 60 percent of the owed balance, according to Bucci. Their tactics often damage your credit rating. For example, Bankrate credit card advisor Leslie McFadden warns that some companies instruct you to stop paying your credit cards. Instead, you send the funds to the settlement firm until it has enough to make a settlement offer on your behalf. Your credit score plunges in the meantime because of skipped payments, and your card issuers may add late fees to your accounts, sue you for the debt or charge off your balance and transfer the account to a collection agency.