Debt Settlement Offer

Debt settlement offers are a legitimate way to pay debts that you owe if you are in certain circumstances that make you eligible for the process. In an industry that is plagued by companies who want to take advantage of debtors in need, debt settlement offers may feel like a dangerous path to take. This is why it’s so important for you to understand what it means to settle your debt in this way before applying. You want to make a trustworthy settlement with a financial adviser that can help you to pay back all of your creditors. Here we will discuss entering into a debt settlement offer with an advisor or contacting each creditor yourself, plus the benefits of this process to settle your money issues.

Negotiating a debt settlement offer

If you find yourself struggling with unmanageable loan and credit card amounts then a debt solution you may consider is a debt settlement offer. There are a lot of full and final settlement success stories from similar cases as yours and is one of the most effective solutions available if you receive a lump sum of money.

The lump sum could be anything from inheritance to a lottery win. Having a large amount of money like this, as long as it is substantial enough, could be accepted to close your accounts with creditors.

Full and final settlement, how much to offer in full and final settlement

Debit Card

The offer you write down in your full and final settlement letter will all depend on how much money you have. The general rule is that the higher the offer is, the more likely it will be to be accepted. If your lump sum won’t cover all of your debts then it may be a wise idea to talk to some insolvency practitioners about who to prioritise payments too.

There is always the option to offer just one creditor a payment and not share it with another creditor company. Or you can divvy up the funds and make payments on all of your debts.

Negotiating a full and final settlement on your own

When you receive a lump sum payment you may want to check if you will have to pay any tax on it. To confirm this you can talk to the HRMC. Set aside the money you will have to contribute in tax before going ahead with an offer to settle your outstanding money owed. Next you will have to send a proposal letter to your creditors detailing how much you want to offer them. Ensure you get proof of this correspondence even if it was sent from your email address as it could prove useful in the future.

Keep all correspondence, even to an email address and get everything written down and signed

Any letters or emails you receive from a creditor should be kept for up to six years. This can be used as proof that the account was partially settled with that company should they ever dispute it. If there’s anything you don’t understand about the process there is always registered charities you can contact for financial help.

Paying more than one creditor in your debt settlement offer

Owing a debt to more than one company is a fairly common occurrence. In this case you can share out the lump sum but it’s important you do your calculations correctly so it’s fair for everybody involved. The creditor that you owe the most money too should be offered the biggest piece of the lump sum. Then continue down to the debt you owe the least on. There’s a handy formula you can use when working out how to split up the payments which is:

Lump sum amount x each individual debt you owe ÷ total amount of debt owed

This calculation can help you work out what payment you can offer to each creditor and see if they will accept it to settle your debt. You should also send them a full breakdown of how the payments have been shared out amongst the other creditors so they can see that they are getting a fair share of it.

Credit report listing for a full and final settlement

When you settle a debt with an offer in this note then that account is officially closed. However it will only be classed as being partially settled. When other creditors or finance companies see that a previous debt wasn’t settled in full, it may sway their decision whether or not to accept your application for further credit. This is because it shows you couldn’t make a full payment on the amount you owed. After a six year period the debt offer will be removed from your credit report and it will no longer affect your rating.

Creditors declining a full and final settlement

Not every creditor will be happy to accept a debt offer payment. In this case you may have to go to them with further payment negotiations in order to reach a common ground for repaying your creditors. They may instead opt to amend the payment amount or come up with a different solution entirely to solve the problem.

There are alternative options that your creditors could be happier with instead of a debt settlement. This includes an IVA or DRO if you know you meet the eligibility criteria for these solutions.

Pros and cons of debt settlement


  • You lower your overall debt amount by being able to contribute a large amount of money towards your debts. In most cases many of your debts could be written off.
  • Debt settlement could help you avoid more serious forms of debt management such as bankruptcy.
  • Creditors will back off significantly if you can make a generous payment towards the debt you owe.
  • Debts can be paid off much more quickly than if you were to enter into a debt management plan or IVA. Once you have reached a settlement amount the debt is considered over and you won’t have to continue making payments over the long term.
  • Being able to clear some of your debt offers you a chance to get a fresh start without your property or assets being affected.
  • It’s a much more attractive option to a creditor than going for a more formal legal route such as an IVA or bankruptcy. Many creditors will agree openly to an offer because they will receive a larger percentage of the money back than if you went down a different path.


  • Your creditors don’t have to agree to the negotiations and may not want to green light the offer you put forwards.
  • You could end up in more debt than what you started with. A scheduled payment plan may be part of negotiations of your settlement. In this case then late fees and interest will still be applied to your account.
  • You can still be charged fees even if you reached a settlement amount. Early or large payments often carry a hefty charge with debt companies.
  • Even though you have paid off your debt you credit will still be negatively impacted.

Alternative options to debt settlement

  • Consolidate existing debts – If you have credit cards or loans with a high amount of interest then it may be a good idea to consolidate them into one, lower interest loan. If you already have a large amount of money that you were going to use as settlement you can take out a new loan to pay off existing debts, then use that money to pay off the new debt. This means you will only have to make one monthly payment which is much more manageable than paying various creditors throughout the month.
  • Debt management plans – If you are struggling with debts then a debt management plan may be a more suitable option for you instead of a settlement offer. Entering into one of these plans helps you make lower monthly payments over a five year time frame to pay off debts altogether. The debt management plan will have less of a negative impact on your credit rating because you end up paying off the debt in full and not making a partial settlement towards them.
  • Bankruptcy – Bankruptcy is very much a last resort if you find your debts to be out of control. However, it can give you relief from debt in a short amount of time. Within a year all of your debts are written off, but the process has serious consequences on your credit, property and assets. Deciding to go bankrupt is a big commitment and should only be done under the advice of a financial expert.

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