Debt collectors typically pay between 1 and 8 cents for every dollar of debt they buy. A Federal Trade Commission study of nine large debt buyers put the average purchase price at about 4 cents per dollar of face value across all debt types.1Federal Trade Commission. The Structure and Practices of the Debt Buying Industry Where a specific account lands in that range depends on what kind of debt it is, how old it is, and how much documentation the seller can hand over with it.
Prices by Debt Type
Debt is sold in bulk portfolios, sometimes thousands of accounts at a time, and priced as a fraction of the total balance owed. The rough going rates:
- Credit card debt: about 4 to 7 cents per dollar. Accounts less than three years old, bought straight from the original bank, and under $1,000 in balance can reach closer to 8 cents.2Federal Reserve Bank of St. Louis. Costs of Defaulting on Credit Card Debt Depend on the Exit Taken by Borrower
- Medical debt: about 1 to 5 cents per dollar. Billing disputes are common and health privacy rules add compliance costs, so buyers pay less than they do for credit card accounts.1Federal Trade Commission. The Structure and Practices of the Debt Buying Industry
- Auto loan deficiencies: about 1.5 to 3 cents per dollar. Once the car has been repossessed and sold, what’s left is hard to collect.
- Consumer and installment loans: about 3 to 5 cents per dollar, depending on terms and borrower records.
- Utilities and telecom: about 1.5 to 3 cents per dollar. Small individual balances make per-account collection inefficient.
Larger balances actually sell for less. Face values between $5,000 and $20,000 tend to trade for roughly 2 cents less per dollar than smaller accounts, because a high balance often means a borrower who is already stretched too thin to pay.2Federal Reserve Bank of St. Louis. Costs of Defaulting on Credit Card Debt Depend on the Exit Taken by Borrower Large buyers can also pay a premium for the right to see portfolios directly from major banks before those accounts hit the wider brokerage market.
What Makes a Portfolio Worth More or Less
Age is the biggest single factor. CFPB data shows prices dropping by roughly 30 percent a year for the first several years after charge-off.3Consumer Financial Protection Bureau. Market Snapshot: Online Debt Sales By the time a debt is around 15 years old, the price is close to zero because recovery is almost impossible.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 list for less than a tenth of a cent per dollar. One $156 million portfolio was listed for $125,000.
Beyond age, buyers look at:
- Collection history. Accounts already worked by multiple agencies sell at deeper discounts because the odds of recovery are lower.
- Contact information. Verified phone numbers, current addresses, and employer details raise the price. Portfolios missing that data force the buyer to pay for skip-tracing.
- Geographic mix. Buyers prefer accounts in states with lower court filing fees, faster judgment processes, and less restrictive consumer-protection laws.
- Documentation. Portfolios that include original applications, billing statements, and a clean chain of ownership sell for more, because the buyer can actually prove the debt if the case ends up in court.
- Statute of limitations. Every state caps how long a creditor has to sue on a debt, typically 3 to 10 years for written contracts. Accounts still inside that window are far more valuable than time-barred debt, which cannot be enforced through a lawsuit and sells for a fraction of a cent per dollar.
One warning tied to that last point: in many states, a partial payment or a written acknowledgment that you owe an old debt can restart the statute of limitations, opening a fresh window for the collector to sue you.4Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt That’s Several Years Old Confirm where your state’s clock stands before you pay or put anything in writing.
Why the Purchase Price Matters to You
The gap between what you owe and what the collector paid is your negotiating room. If a debt buyer paid about $250 for your $5,000 credit card balance, it doesn’t need to collect $5,000 to profit. It needs to cover the $250 plus its operating costs: data handling, compliance staff, collector salaries, and any legal expenses. Court filing fees alone run roughly $15 to $400 depending on the jurisdiction, on top of the cost of serving papers.
Through debt settlement companies, consumers typically end up paying about 50 to 70 percent of the original balance. Negotiating directly with a debt buyer, especially on older accounts, you may settle for less, sometimes 30 to 50 percent, because no settlement company is taking a cut and the buyer’s acquisition cost was pennies.
A few things that tend to help:
- Offer a lump sum. Collectors prefer one guaranteed payment over a plan that could fall apart, and a one-time offer buys you a lower percentage.
- Start low. On older debts with weak documentation, an opening offer around 20 to 30 percent of the balance is reasonable. The collector will counter.
- Get it in writing before you pay. The agreement should state the settlement amount, confirm the account will be reported as settled, and confirm the collector will not pursue the remainder.
One boundary worth noting: original creditors who still hold the debt themselves haven’t paid pennies for anything, and they typically expect 70 to 90 percent of the balance to settle. The steep discounts only apply once a debt buyer is in the picture.
The Tax Bill You May Owe If You Settle
When a collector accepts less than the full balance, the IRS generally treats the forgiven portion as income. A creditor or collector that cancels $600 or more of debt is required to file Form 1099-C reporting the amount to the IRS.5Internal Revenue Service. Instructions for Forms 1099-A and 1099-C You have to report canceled debt as income on your return even if no 1099-C shows up in the mail.6Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments
Settle a $10,000 debt for $4,000, and the remaining $6,000 generally counts as ordinary income for the year the deal closed. Depending on your bracket, the tax on that can be substantial, so factor it into the offer before you agree.
Two exclusions can reduce or eliminate the hit:
- Bankruptcy. Debt discharged in a Title 11 bankruptcy case is fully excluded from gross income.7Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
- Insolvency. If your total liabilities were greater than the fair market value of your total assets right before the cancellation, you can exclude the canceled debt up to the amount by which you were insolvent.7Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
Either exclusion requires filing Form 982 with your federal return.6Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments The insolvency calculation means listing every asset and liability as of the day before the cancellation, which gets complicated fast. If the forgiven amount is large, a tax professional is worth the fee.