Debt Settlement

If you find yourself overwhelmed by outstanding payments and mounting debt, then Debt Settlement may resolve your financial difficulties.

However, before you decide to proceed with a Debt Settlement plan, speak to a financial adviser to make sure that this is the best route for you. By taking our IVA test, you can check which debt solutions you are eligible for.

What is Debt Settlement?

Debt Settlement is a method used to repay what you owe. You contact the creditor directly and negotiate a reduced sum, agreeing to make set payments over a certain period of time. Alternatively, you can agree to pay a reduced amount in one lump sum (this is also referred to as a full and final settlement). The remainder of the debt left after the reduced sum is paid is then written off by the creditor.

If you are unable to meet your current repayment demands but want to make a start on settling your debt, you can put an offer of a reduced amount to your creditor. It's been known for some debtors to receive a reduction of up to 50% on their payments. Some creditors will accept these reduced amounts because it means that instead of receiving minimum payments for a long period of time, they will receive a large lump sum up front (or increased monthly payments).

However, creditors are not obliged to accept offers of a reduced payment, and may reject any negotiation.

How do I agree a Debt Settlement?

If you have a lump sum of cash available to you (for example, from inheritance or selling an asset), you can put it towards settling your debt. Alternatively, you can review what income you have available at the end of each month to see what payments you can realistically afford.
Before making a payment offer to your creditor, carefully consider what you can afford to pay. When you know what amount you are willing to offer (whether this is a lump sum or a monthly payment plan), put this in writing to your creditor.

You may find that creditors have different policies on accepting Debt Settlement proposals, so you may need to negotiate with all of your creditors individually to reach an agreement. When you do agree a reduced amount with your creditor, get their confirmation in writing before transferring any money to them.
As this type of debt solution is an informal agreement, it is not enforced by law. This means you are not offered any protection as you are with other solutions, such as an Individual Voluntary Arrangement (IVA).

How will Debt Settlement affect me?

If you are able to agree payment terms with your creditors, they should be able to amend the status of your debt on their records once payment is received in full.
If they amend the status to 'settled in full', this shows your other creditors that payment was settled completely and shouldn't affect your credit rating. However, if they mark the record as having received 'partial settlement', it will show your creditors that your debt was settled for less than what was outstanding. This will appear on your credit file for six years, and could potentially affect your ability to gain credit in the future.

You can learn more about Debt Settlements and other debt solutions, such as an IVA, by contacting our team who will put you in touch with our expert partners.

For more information regarding Debt Settlement, call us now on 0808 163 9579 to speak to an advisor or complete the form below.

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