Debt collectors generally pay between 1 and 8 cents for every dollar of debt they buy, with the exact price depending on the type of debt, how old it is, and how well-documented the accounts are.1Federal Trade Commission. The Structure and Practices of the Debt Buying Industry A Federal Trade Commission study of nine major debt buyers put the average purchase price across all debt types at about 4 cents per dollar of face value. Those steep discounts matter because they create real room to negotiate if a collector contacts you about an old account.
Prices by Type of Debt
Debt portfolios are sold in large batches, sometimes thousands of accounts at a time, and priced as a fraction of the total face value. What a buyer pays shifts significantly from one category to the next.
- Credit card debt sells for roughly 4 to 7 cents per dollar. Accounts less than three years old, bought directly from the original creditor, and under $1,000 in face value can reach close to 8 cents per dollar.2Federal Reserve Bank of St. Louis. Costs of Defaulting on Credit Card Debt Depend on the Exit Taken by Borrower
- Medical debt trades around 1 to 5 cents per dollar. Billing disputes are common and health privacy rules add compliance costs for collectors, both of which push prices down.1Federal Trade Commission. The Structure and Practices of the Debt Buying Industry
- Auto loan deficiencies run about 1.5 to 3 cents per dollar. After a car is repossessed and sold, the leftover balance is hard to collect because the borrower no longer has the asset that motivated payments.
- Consumer and installment loans fetch roughly 3 to 5 cents per dollar.
- Utility and telecom debt usually sells for 1.5 to 3 cents per dollar, since small individual balances make per-account collection less efficient.
Size cuts the other way than you might expect. Larger face-value debts between $5,000 and $20,000 tend to sell for about 2 cents less per dollar than smaller accounts, partly because high balances often signal a borrower who is already deeply overextended.2Federal Reserve Bank of St. Louis. Costs of Defaulting on Credit Card Debt Depend on the Exit Taken by Borrower
What Drives the Price Up or Down
The age of an account is the single biggest factor. CFPB data shows that prices drop by roughly 30 percent per year for the first several years after charge-off.3Consumer Financial Protection Bureau. Market Snapshot: Online Debt Sales A Federal Reserve analysis found that the price for debt 15 years old is close to zero.2Federal Reserve Bank of St. Louis. Costs of Defaulting on Credit Card Debt Depend on the Exit Taken by Borrower At the very bottom of the market, some online portfolios ask less than one-tenth of a cent per dollar. One $156 million portfolio was listed for just $125,000.
Beyond age, buyers look at the account before setting a price. Portfolios already worked by multiple agencies sell at steeper discounts because recovery is less likely. Verified phone numbers, current addresses, and employer details raise the price, while files that require skip-tracing to find the debtor drag it down. Buyers also prefer accounts concentrated in states with lower court filing fees and faster judgment procedures, and state consumer-protection rules influence how aggressively a collector can pursue each file. Finally, portfolios that include original account applications, billing statements, and a clear chain of ownership command higher prices because the buyer can more easily prove the debt in court if challenged.
What Those Prices Mean When You Negotiate
If a collector bought your $5,000 credit card balance for around $250, it does not need to collect the full $5,000 to turn a profit. It just needs to recover enough to cover the purchase price and operating costs, including data management, compliance staff, collectors’ salaries, and legal expenses if it decides to sue. Court filing fees alone typically run $15 to $400 depending on the jurisdiction, plus the cost of serving legal papers.
That math is why direct settlements with debt buyers can land well below the balance. Through debt settlement companies, consumers typically end up paying roughly 50 to 70 percent of the original balance. Negotiating directly with a debt buyer, particularly on older accounts, can sometimes get the number down to roughly 30 to 50 percent, because no settlement company is taking a fee and the buyer’s acquisition cost was tiny to begin with.
A few practical points help:
- Lump-sum offers get better terms. Collectors prefer a guaranteed one-time payment over a payment plan that might fall apart.
- On older debts with weak documentation, an opening offer of 20 to 30 percent of the balance is reasonable. The collector will counter.
- Before sending any payment, get a written agreement that specifies the settlement amount, confirms the debt will be reported as settled, and states that the collector will not pursue the remaining balance.
Original creditors who have not yet sold the debt usually expect far more, often 70 to 90 percent of the balance. The biggest discounts come from debt buyers who paid pennies on the dollar.
What a Collector Must Tell You
Federal law requires a debt collector to send a validation notice within five days of first contacting you. Under the Fair Debt Collection Practices Act, that notice must include the amount of the debt and the name of the current creditor. If you want the name and address of the original creditor, which is often different from the debt buyer now writing to you, you have 30 days to request it in writing.4Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts
The CFPB’s Regulation F, in effect since 2021, expanded those requirements. The validation notice must now include an itemization date (such as the last statement date, charge-off date, or last payment date) along with the balance on that date and a breakdown of how interest, fees, payments, and credits have changed the balance since.5Consumer Financial Protection Bureau. Regulation F 1006.34 – Notice for Validation of Debts If a notice is missing any of this information, you can dispute the debt in writing within 30 days, and the collector must stop collection efforts until it sends you verification.
Collectors also cannot contact you before 8 a.m. or after 9 p.m. local time, at your workplace if your employer prohibits it, or directly if you have told them you are represented by an attorney. A written request telling the collector to stop all further communication must be honored, with narrow exceptions such as notifying you of a specific legal action.6Office of the Law Revision Counsel. 15 USC 1692c – Communication in Connection With Debt Collection
Watch the Statute of Limitations on Old Debt
Every state sets a time limit, the statute of limitations, on how long a creditor or collector can sue you to recover a debt. For debts based on written contracts, this window typically runs about 3 to 10 years depending on the state. Debt still inside that window is worth far more to a buyer because a lawsuit is on the table. Debt past the deadline, sometimes called time-barred or zombie debt, sells for a fraction of a cent per dollar.
Collectors can still contact you about time-barred debt and ask for payment. They just cannot sue you. The trap: in many states, making a partial payment or acknowledging in writing that you owe an old debt can restart the clock, giving the collector a fresh window to file a lawsuit.7Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt That’s Several Years Old If a collector contacts you about a very old account, confirm whether the statute of limitations has expired in your state before making any payment or written promise.
Tax Consequences of Settling for Less
When a collector agrees to accept less than you owe, the IRS generally treats the forgiven portion as taxable income. If a creditor or collector cancels $600 or more of debt, it must file Form 1099-C (Cancellation of Debt) reporting the forgiven amount.8Internal Revenue Service. Instructions for Forms 1099-A and 1099-C You must report canceled debt as income on your tax return even if you do not receive a 1099-C.9Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments
If you owed $10,000 and settled for $4,000, the remaining $6,000 would generally count as ordinary income for the year the settlement was finalized. Depending on your tax bracket, that bill can be large, so factor it into any settlement calculation.
Two exclusions can reduce or eliminate the tax hit. Debt discharged in a bankruptcy case under Title 11 is excluded from gross income entirely.10Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness And if your total liabilities exceeded the fair market value of your total assets immediately before the debt was canceled, the insolvency exclusion applies, capped at the amount by which you were insolvent. To claim either exclusion, file Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) with your federal tax return.9Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments The insolvency calculation requires listing all your assets and liabilities as of the day before the cancellation, and a tax professional is worth considering if the forgiven amount is large.
What a Debt Sale Does to Your Credit Report
When your original creditor charges off an account and sells it, you may see two entries on your credit report: the original account showing a zero balance with a “charged off” notation, and a new collection account opened by the debt buyer. Both are negative, and the charged-off account stays on your report for seven years from the date of the first missed payment that led to the charge-off.
If you negotiate a settlement with the debt buyer, the collection account should update to show a zero balance and a status like “settled” or “paid for less than full balance.” That is an improvement over an open collection, but still a negative mark. Some consumers ask for a pay-for-delete arrangement, where the collector agrees to remove the collection entry entirely as part of the settlement. Asking is legal, but collectors are often bound by agreements with the credit bureaus that prohibit removing accurate information, so many will refuse or will refuse to put the agreement in writing.
One last point worth remembering: if the original creditor has already sold the debt, sending payment to the original creditor will not help you. The original account balance has already been zeroed out, and the collection account is the one that needs to be resolved.