If you have access to a lump sum, perhaps from savings, a family gift or a windfall, you may be able to settle debts for less than the full balance. Many creditors, especially debt purchasers, will consider reasonable offers.
The short answer
- You offer a lump sum that’s less than the full balance.
- The creditor doesn’t have to accept, but many will.
- Always get acceptance in writing before you pay.
- Your credit file will show the account as partially settled.
- Make sure paying the lump sum won’t leave priority bills unpaid.
When does a settlement make sense?
Settlements work best when you have a realistic lump sum and a small number of debts. Creditors are more likely to accept if the debt is already in default or has been sold to a collection agency.
How do I make an offer?
- Work out what you can afford and how much to offer each creditor.
- Write to the creditor making a “full and final settlement” offer, explaining your circumstances.
- Wait for written confirmation that the offer is accepted and the account will be closed.
- Pay exactly as agreed, and keep the letter safely.
What if I have many debts?
If the lump sum won’t cover all of them fairly, a formal solution may work better. An IVA can include a lump sum alongside monthly payments. If you’re already in an IVA, a lump sum can be offered through a full and final settlement of the IVA.
Common questions
Does a full and final settlement hurt my credit score?
Your file shows the account as partially settled, which lenders may view less favourably than paid in full. The default, if there is one, stays for six years from the default date.
Can a creditor chase me after a full and final settlement?
Not if they accepted it in writing and you paid as agreed. Keep the acceptance letter.
How much should I offer in a full and final settlement?
There’s no set amount. Offer what you can genuinely afford without leaving yourself short for essential bills.
Getting help
You don’t have to deal with debt on your own. Free, impartial advice is available from MoneyHelper, StepChange and National Debtline. If you want to talk through whether a formal solution such as an IVA could be suitable, you can also get in touch with us.