Debt Settlements

What are full and final settlement offers?

Many of our clients that use Debt Management go on to settle their debts early by using our Full and Final Settlement service. If you find yourself in the position of being able to release some equity from your property or come into some money from some other source, you may like to settle some or all of your debts.

There are two ways of dealing with this. If you are looking to settle just one account, we can approach that creditor to find out the discount that they would be willing to offer using their current policy. Creditors vary in their approach to this and will offer different discounts.

The second way of using the Full and Final Settlement service would be to have a lump sum available to settle all of your accounts. We can approach the creditors and make offers to all of them on a pro rata basis. This means that each of the creditors get a fair share of the money so the largest debt will get a larger amount and the smallest debt will get a smaller amount. If the creditors think that that they are all being offered a fair share then they are more likely to accept the offers.

In every case, the debt is never settled without having the offer in writing as we have heard from individuals in the past where their creditors have come back expecting the remainder of the debt or the interest that was not paid.

If you do this yourself, it is important that you get the offer in writing.

Here is an example of a pro rata full and final settlement:

EXAMPLE OF A FULL AND FINAL SETTLEMENT

You may have £12000 owing to 5 creditors. You can raise a lump sum of £5500

You owe:

£1800 – BARCLAYCARD
£ 4500 – MBNA
£ 1400 – CATALOGUE
£1600 – STORECARD
£ 2700 – MASTERCARD

Using  the following formula:-

£5500 (lump sum available) x £1800 (debt to Barclaycard) ÷£12,000 (the total amount you owe to creditors)

= £825 (offer to Barclaycard)

The offer to Barclaycard is £825. You then do the same calculation for each creditor, using each individual debt in the calculation.

Your offers to your creditors should look like this:-

Offers made without settlements

BARCLAYCARD – £1800
MBNA  – £4500
CATALOGUE  – £1400
STORECARD – 1600
MASTERCARD  – £2700

Total = £12000

Offers made using the settlement figure of £5500

BARCLAYCARD – £825
MBNA  – £2062
CATALOGUE  – £641
STORECARD – £733
MASTERCARD  – £1239

Total = £5500

Full and final settlements are a great way to reduce the amount of debt over a period of time or settle all of the outstanding debt.