Frequently Asked Questions About Debt Settlement
How much should I offer to settle a debt?
You need to work out how much you want to send each of your creditors and then send them your offer in writing to make it official. So for example if you have received a lump sum of money that could pay off 75% of your total amount of debt, you should offer each of your creditors 75% of the amount you currently owe them.
How much does debt settlement affect your credit score?
When you have made a full and final settlement offer to a creditor they will make a mark on your credit report that the debt has been partially settled. This will show other people such as a credit reference company that you had a debt that was cleared for less than what was owed. After six years the debt settlement offer will be removed from your credit score. Until then it will continue to negatively impact your chances of being approved for a credit card or loan.
Can you negotiate debt settlement?
A debt settlement offer is completely open to negotiation between you and your creditors. The settlement offers will be laid out on the table to each of your lenders who can then either approve, deny or negotiate your full and final settlement offer.
Is debt settlement really worth it?
There are reasons that a debt settlement offer could be one of the best debt solutions available to you and really worth your time. Settlement offers can lower the amount of debt you have, help you to avoid more severe debt solution such as bankruptcy and help to get collectors and lenders off your back. However, there are also risks to consider when paying off debt in a lump sum. Your lending company don’t have to agree to the negotiations, you could end up with more debt than what you started with and settlement offers have a negative impact on your credit score which credit reference agencies will consider in the future.
To confirm if a debt settlement offer is worth it in your current circumstances, you need to get the advice of insolvency practitioners who can share their knowledge of appropriate debt solutions.
How much will debt collectors settle for?
If you decide on a debt settlement there is no one offer that every loan or credit card company will accept. It all depends on the individual circumstances and what the company decides is the amount of money which will be accepted. Before you go in with a settlement figure make sure you have a set amount in mind and stick to it. Don’t agree to pay out any more money than you can afford to, even if the creditors won’t accept that share.
Is there a time limit for debt settlement?
There is no set time that the offer will take to complete. It all depends how fast you can get your creditors to agree to your new plan and if you can settle the debts so that they can be written off. The best advice is to try and do these kinds of offers as quickly as possible. The longer you wait the more risk there is of interest and fees being added to your account and your creditors can sue you if you leave bills unpaid.
Will I have to pay tax on a settlement?
In some cases if you end up saving more than £500 when settling a debt thanks to negotiations then you will have to declare this money to the tax office as income. Even though you may not see this as income or saving money because you have paid off a debt, it’s important that you declare it to HMRC.
Can I apply for more credit after a settlement?
Almost immediately after you have paid off your debts you can apply for any sort of credit or finance you want. However, this is considered risky. You have made the larger payment to get out of debt, so the last thing you want to do is go ahead and take out more. If it can be avoided you should not seek to take out another line of credit. Plus your credit score will be damaged from the settlement order for six years, meaning many loan and credit card companies won’t approve your application and if they do, you will most likely be subjected to high rates of interest.
It’s important to keep in mind that a settlement offer can solve your immediate issues with money owed to various creditor companies, but it doesn’t address what caused your money problems in the first place. It’s also very possible that you can run into the same problems again in the future. Debt solutions work at solving your current problems, but if you have issues with budgeting or overspending then you should speak to a certified financial advisor. They can give you free help and the right tools and knowledge to prevent this situation happening again in the future.