Calculate debt settlement amount, negotiated settlement rate, or outstanding debt by entering two known values and solving for the third.
Debt Settlement Formula
The following equation estimates total settlement cost, including entered fees. The payment rate is the percentage paid to the creditor, not the percentage forgiven.
- Where DS is the debt settlement amount ($)
- OD is the outstanding debt ($)
- SP is the settlement percentage (decimal form)
- F is the fees ($)
To calculate the debt settlement, multiply the outstanding debt by the settlement percentage, then add all associated fees.
What is a Debt Settlement?
Definition:
A debt settlement refers to an agreement between a debtor and a creditor where the total amount owed is reduced, allowing the debtor to pay off the debt in a lump sum or through structured payments.
How to Calculate Debt Settlement?
Example Problem:
The following example outlines the steps and information needed to calculate the Debt Settlement.
First, determine the outstanding debt. In this example, the total owed is $10,000.
Next, determine the settlement percentage that the creditor agreed to accept. In this case, the settlement percentage is 60% (0.60).
Then, determine the total fees. The fees amount to $100.
Finally, calculate the debt settlement using the formula above:
DS = (OD × SP) + F
DS = (10,000 × 0.60) + 100
DS = $6,100
FAQ
How does a debt settlement impact my credit score?
Debt settlements typically have a negative impact on credit scores because they indicate the debt was “settled” rather than “paid in full.” However, for those struggling with financial hardship, a settlement might still be preferable to defaulting entirely.
What additional costs can be included in a debt settlement?
Fees from debt settlement companies, legal fees, and potential interest on overdue payments may all factor into the total cost of a settlement. It is important to review and consider these costs before finalizing any settlement agreement.
How long does a debt settlement typically take?
Timing depends on the agreement and creditor acceptance; there is no guaranteed duration or outcome. Interest, fees, credit damage and legal action may still occur. Canceled debt may be taxable unless an exception or exclusion applies; this calculator does not estimate taxes.
