What Percentage Should I Offer to Settle a Debt

If you are struggling to pay your loan or credit card bills then you are not alone. That is because many people in India face this situation due to job termination, medical expenses and other financial problems. In such cases, debt settlement can be a useful option because it allows you to pay a part of your total loan amount and close the account permanently. However, people always get confused about what percentage I offer to settle a debt.

This blog will help you understand the right percentage to offer, how settlement works and what you should keep in mind before taking this step.

Understanding Debt Settlement

The debt settlement is a process of offering a lower lump sum amount to the bank or lenders to clear the outstanding dues. If your lender agrees, they will accept the one-time payment and close your account by forgiving the rest of the remaining balance. It could be initiated by you or a loan settlement agency on your behalf when you are unable to pay the full amount due to financial difficulties.

Ideal Percentage to Offer

Well, there is generally no fixed percentage that works for all the cases because people might have outstanding dues ranging between different money scales. However, lenders in India accept between 30 per cent to 60 per cent of the total outstanding amount as settlement. The exact percentage depends on many things, like:

• The duration of your debt.
• If your lender still owns it or has sold it to a recovery agency.
• Your current financial situation.
• Your repayment history.

What Affects the Settlement Amount

Now, we will discuss what really affects your settlement amount in detail below.

Age of the Debt

If your loan or credit card has not been paid for a long time, let’s say more than 12 months, then the chances of a lower settlement increase. That is because the older the debts are the harder it becomes to collect them, so banks may accept a smaller amount to recover at least something.

Current Owner of the Debt

If the loan is still with the original bank, they may ask for a higher amount. However, if the debt is sold to a recovery agency, they often settle for even 25 to 35 per cent of the total dues because they bought the debt at a lower cost.

Your Financial Condition

If you are facing genuine financial problems like job loss or medical issues, you can explain this to the lender. Also, showing your income documents and bank statements helps them understand your situation. In such cases, the lenders are more likely to accept a lower percentage.

How to Start the Settlement Process

If you want to opt for debt settlement, then you must know the steps that are involved in its process. Let’s understand them below:

Step 1: Know Your Total Dues

You should know your total dues before proceeding with the payment. You can contact your lender and ask for a detailed overview of your outstanding amount. This should include the principal, interest, penalties and late fees (if any).

Step 2: Plan What You Can Afford

After that, check your balance or savings to know how much you can pay as a lump sum to your lender. It is advisable not to offer more than what you can arrange. You should be realistic and honest about your financial situation to avoid future stress.

Step 3: Make an Offer

You should start negotiating by offering 30 to 40 per cent of your total outstanding amount. However, if the lender rejects it, then slowly raise your offer. You should agree only to a figure that you can afford without borrowing again or facing financial trouble.

Step 4: Get a Written Agreement

Once your offer is accepted, ask for a written letter from the lender. It must mention the agreed amount, payment deadline and confirmation that the account will be marked as “settled” or “closed” after successful payment. It is advisable for you to never rely on verbal promises alone.

Step 5: Pay and Collect Proof

Make the payment through bank transfer or another trackable method. Once you have paid the discussed amount successfully, collect and keep all documents like the payment receipt, settlement letter and a no-dues certificate safe. These are important if any future issue or dispute arises with your lender.

Important Things to Know

There are a few important things you should keep in mind before you go for debt settlement. These will help you make the right decision and avoid any confusion or trouble later.

• First of all, debt settlement is completely legal in India and it is done through mutual agreement.
• It should be your will to settle, lenders can’t force you to do so.
• Your credit report will show “settled” status instead of “closed” for 7 years.
• Debt settlement is useful when you can’t pay the full amount and want to avoid legal problems.

When You Should Avoid Settlement

You can avoid debt settlement in certain cases:

• When the debt amount is small and can be paid through a few EMIS.
• When you plan to apply for a new loan or credit card soon because a settlement will affect your credit score.
• When the lender is giving you a simple loan restructuring option because it will have less impact on your credit score.

Final Thoughts

Debt settlement should be your last resort when you sense that you can’t pay the full amount. If we talk about the percentage that you should offer to settle your debt is around 30 to 60 per cent of the total amount is good. However, you should always negotiate carefully, get written proof and make sure the payment method is traceable.

If you are still unsure how to deal with lenders, then Loan Resolve Services can help. We will guide you through the settlement process, talk to creditors on your behalf and help you close debts smoothly and legally.