Money worries? Learn more on full and final settlement offer

Full and final settlement

Worries over money and debt can soon take their toll, leaving people feeling stressed and anxious. Whatever the reasons behind your debt, it is important to deal with the issues you are facing. Ignoring requests for payment or other communications from your creditors will, in the longer term, only make matters worse.

Finding a way out of debt can, for many people, take several years. However, for those who can raise cash, whether through the sale of an asset, (such as property, car or other goods), there is a way in which debt can be quickly cleared, providing your creditors agree to it.

What is a full and final settlement offer?

A full and final settlement offer, sometimes known as a partial settlement, is where the debtor offers a lump sum, that is less than the amount owed, to clear the debt.  The benefit to the debtor is clear; debt free sooner rather than later. There are benefits for creditors too, not least receiving a lump sum and not having to chase the debt further.

In some cases, creditors themselves will propose a full and final settlement and if this is a situation you find yourself in you should review the offer carefully. If it works for you, look at ways to raise the money they require to settle the debt.

Do my creditors have to accept my settlement offer?

No, they don’t. Your creditors have the right to recoup all money owing to them, however, in cases where the amount repaid each month is low and the debt would take years to clear, they may be more open to receiving a larger, one-off payment.

I have a number of creditors; how do I divide the money up?

In cases where there is just one creditor, it is simple to work out how much of a percentage of your debt your lump sum is, and offer this amount. For example, if you owe £10,000 and have a lump sum of £5,000, you can offer your creditor 50% of the debt as a full and final payment.

If you have several debtors, use the same process, trying to pay as much as possible. Be sure to prioritise those debts which are accruing interest or other charges as this will prevent the debt from increasing.

How can I maximise the chances of my creditors accepting my offer?

Firstly, make sure your offer is realistic, offering £1,000 on a £50,000 debt is unlikely to be accepted. Put your offer in writing, explaining how you came to the figure you are proposing and detail your financial circumstances and how long it will take you to repay the debt in your current situation. You may have to negotiate with your creditor to find a figure you are both happy with.

What will the settlement mean for my credit score?

Once agreed, your full and final settlement will be marked as ‘partially settled’ on your credit score. For the next six years, (or six years from when the debt was defaulted if earlier), future creditors will be able to see this information and it could impact whether they choose to lend to you or not.

My offer of full and final settlement has been rejected, what’s next?

If you are unable to agree a full and final settlement offer there are other options available to you. To be sure you make the right decisions for you, get debt advice from a specialist who can advise on the different options for your circumstances.

If you require legal advice, call 0330 123 1229 for straight-forward information and support.