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Tackling your debts

Can you settle your debts and pay less?

Posted 14 June 2017

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It’s sometimes possible to clear your debts with a lump sum of money, even if you don’t have enough to repay everything you owe. If your lenders agree to accept the lower amount, this is known as a ‘partial’ or ‘full and final’ settlement.

If you’re looking at ways to clear your debts, you might have heard of settlements and be wondering how this works exactly. In this article we’re going to explain when and how you can settle your debts and clear them once and for all.


A debt settlement means you pay one lump sum amount to your creditor and they agree to accept this amount to clear the debt. It doesn’t have to be the full amount that you owe, but this arrangement still clears the debt completely and the creditor won’t be able to contact you and ask you to pay the rest. This is known as a partial settlement, or sometimes a short settlement.


The lump sum itself can come from a number of places. You might inherit some money, receive compensation for mis-sold PPI, or a payout if you’re made redundant. In some cases it’s possible to sell some assets and to raise the money needed.


How much your creditors are willing to accept depends on how much you owe, how long they’ve been chasing you for payments and whether or not you’ve already defaulted on the debt. Offers can be rejected but creditors are generally more willing to accept a settlement offer if they can see that it is genuinely all you can afford, or if they’ve been trying to recover the debt for a long time already.


If you settle a debt it will be marked on your credit file as ‘partially settled’. If you have defaulted on the debt that you settled, it won’t affect the amount of time it takes the default to disappear from your credit file – this will still happen six years after the default was issued.


Full and final IVAs


You might have heard about IVAs if you’re looking at ways to clear your debts. Individual Voluntary Arrangements are formal debt solutions which allow you repay your debts at an affordable rate for a fixed term, normally five years. After that time the rest of your unsecured debt included on the plan is written off.


There are also full and final IVAs, where you pay one lump sum amount and your debts are considered settled. An Insolvency Practitioner has to put together an IVA proposal for you and you would need 75% of voting creditors in terms of value, to vote in favour of your IVA.


Don’t forget to get in touch with a trained debt advisor using the options at the top of the page to find the best way out of debt for you and to find out more about settling your debts.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.