{
  "slug": "debt-settlement-savings-calculator",
  "title": "Debt Settlement Savings Calculator",
  "heading": "Debt Settlement Savings Calculator",
  "category": "financial",
  "url": "https://www.revenuelab.fyi/toolbox/debt-settlement-savings-calculator",
  "summary": "What you actually keep after settlement fees, taxes, and credit damage.",
  "description": "Debt settlement companies advertise the headline discount — 'settle for 50 cents on the dollar' — and quietly leave out three costs that eat most of the gain: the settlement company's fee (commonly 15-25% of enrolled debt), income tax on forgiven balances over $600 reported on a 1099-C, and the months of missed payments the program requires before creditors negotiate. This calculator nets all three against the discount so you can see the real saving versus simply paying the balance down. Enter your enrolled balance, the settlement percentage you expect, the program fee, and your marginal tax rate. The result shows total out-of-pocket under settlement, total under straight repayment, and the true difference. Use it before signing anything: for many balances under roughly $10,000 the net saving is small enough that a hardship plan directly with the creditor, or a nonprofit credit counseling debt management plan, comes out ahead once the credit-score damage is priced in.",
  "formula": "Settlement Out-of-Pocket = (Balance × Settlement %) + (Balance × Fee %) + (Forgiven Amount × Tax Rate). Net Saving = Payoff Total − Settlement Out-of-Pocket.",
  "dateModified": "2026-09-06",
  "run_url": "https://www.revenuelab.fyi/api/public/calc?tool=debt-settlement-savings-calculator",
  "inputs": [
    {
      "id": "balance",
      "label": "Enrolled debt balance",
      "kind": "number",
      "hint": null,
      "default": 20000,
      "unit": "$",
      "min": 500,
      "max": 500000
    },
    {
      "id": "settlePct",
      "label": "Expected settlement",
      "kind": "number",
      "hint": null,
      "default": 50,
      "unit": "% of balance",
      "min": 20,
      "max": 90
    },
    {
      "id": "feePct",
      "label": "Settlement company fee",
      "kind": "number",
      "hint": null,
      "default": 22,
      "unit": "% of enrolled debt",
      "min": 0,
      "max": 30
    },
    {
      "id": "taxRate",
      "label": "Marginal income tax rate",
      "kind": "number",
      "hint": null,
      "default": 22,
      "unit": "%",
      "min": 0,
      "max": 50
    },
    {
      "id": "apr",
      "label": "Current card APR (for payoff comparison)",
      "kind": "number",
      "hint": null,
      "default": 24,
      "unit": "%",
      "min": 0,
      "max": 36
    },
    {
      "id": "payoffMonths",
      "label": "Months to pay off instead",
      "kind": "number",
      "hint": null,
      "default": 48,
      "unit": "months",
      "min": 6,
      "max": 120
    }
  ],
  "outputs": [
    {
      "id": "netSaving",
      "label": "Net saving vs paying it off",
      "format": "currency",
      "hint": null,
      "primary": true
    },
    {
      "id": "settlementTotal",
      "label": "All-in cost of settling",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "payoffTotal",
      "label": "Total cost of paying it off",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "fee",
      "label": "Settlement company fee",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "tax",
      "label": "Tax on forgiven debt",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "payment",
      "label": "Monthly payment if you repay instead",
      "format": "currency",
      "hint": null,
      "primary": false
    }
  ],
  "worked_example": {
    "inputs": [
      "Enrolled debt balance: 20000 $",
      "Expected settlement: 50 % of balance",
      "Settlement company fee: 22 % of enrolled debt",
      "Marginal income tax rate: 22 %",
      "Current card APR (for payoff comparison): 24 %",
      "Months to pay off instead: 48 months"
    ],
    "outputs": [
      "Net saving vs paying it off: $14,698",
      "All-in cost of settling: $16,600",
      "Total cost of paying it off: $31,298",
      "Settlement company fee: $4,400",
      "Tax on forgiven debt: $2,200",
      "Monthly payment if you repay instead: $652"
    ]
  },
  "how_to": {
    "title": "How to use this",
    "steps": [
      "Enter enrolled debt balance ($).",
      "Enter expected settlement (% of balance).",
      "Enter settlement company fee (% of enrolled debt).",
      "Enter marginal income tax rate (%).",
      "Enter current card apr (for payoff comparison) (%).",
      "Enter months to pay off instead (months).",
      "Read your net saving vs paying it off on the right — it updates as you type.",
      "Hit Share to keep the scenario or send it to someone."
    ]
  },
  "scenarios": [
    {
      "name": "Conservative",
      "description": "Lower-end numbers — what if things land soft?",
      "values": {
        "balance": 12000,
        "settlePct": 30,
        "feePct": 13,
        "taxRate": 13,
        "apr": 24,
        "payoffMonths": 30
      }
    },
    {
      "name": "Typical",
      "description": "Defaults — the most common real-world setup.",
      "values": {
        "balance": 20000,
        "settlePct": 50,
        "feePct": 22,
        "taxRate": 22,
        "apr": 24,
        "payoffMonths": 48
      }
    },
    {
      "name": "Ambitious",
      "description": "Higher-end numbers — what if things really pop?",
      "values": {
        "balance": 32000,
        "settlePct": 80,
        "feePct": 30,
        "taxRate": 35,
        "apr": 24,
        "payoffMonths": 78
      }
    }
  ],
  "limitations": [
    "Results are estimates before tax, fees, and inflation unless an input explicitly covers them.",
    "Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.",
    "This is educational maths, not financial advice. Check anything contractual with the lender or your accountant."
  ],
  "faq": [
    {
      "q": "Is forgiven debt really taxable?",
      "a": "Usually yes. Creditors file Form 1099-C for cancelled debt of $600 or more, and the IRS treats it as ordinary income unless you were insolvent at the time of settlement or the debt was discharged in bankruptcy. This tool assumes the taxable case; check IRS Form 982 if you think the insolvency exclusion applies to you."
    },
    {
      "q": "Does settlement hurt my credit score?",
      "a": "Yes, materially. Programs typically require you to stop paying creditors for months while funds accumulate, so you accrue late marks, and settled accounts are reported as 'settled for less than full balance' for seven years. This calculator prices the cash, not that damage."
    },
    {
      "q": "When does settlement clearly win?",
      "a": "Large balances you genuinely cannot service, where the alternative repayment period stretches past five years at a high APR. On small balances the fixed fee and tax bill often erase the discount."
    },
    {
      "q": "What's the alternative?",
      "a": "A nonprofit credit counseling debt management plan usually cuts APR rather than principal, keeps accounts current, and charges far less than 20% of your balance. Compare both before enrolling."
    }
  ],
  "related": [
    "https://www.revenuelab.fyi/toolbox/credit-card-payoff-time",
    "https://www.revenuelab.fyi/toolbox/debt-avalanche-vs-snowball"
  ],
  "license": "CC-BY-4.0",
  "citation": "RevenueLab — Debt Settlement Savings Calculator (https://www.revenuelab.fyi/toolbox/debt-settlement-savings-calculator)"
}