Tackling your debts

Full and final settlements – what are they?

Posted 03 September 2016

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You can sometimes make one off lump sum offers to try and clear your debts. Learn more about them here.

If you know you can’t afford to pay back everything that you’ve borrowed and you’ve been looking into ways to tackle the issue, you might have heard about making a “full and final settlement”. But what is this exactly? And how do you go about approaching your creditors with this? 

Let’s have a look into this method of clearing your debts and whether a full or final settlement could work for you.


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What is a full and final settlement? 

Full and final settlements (also known as ‘partial settlements’ or ‘short settlements’) are when you offer your creditors a lump sum of money which is less than the total of what you owe. They accept this amount as you clearing your debts and agree to write off the rest of the debt. 

It’s not only the person who owes the money who can ask for a settlement figure. Sometimes, if you default on a debt, the creditor can write to you and suggest that you pay off your debt in this way. 

You will only be able to make an offer like this if you have a lump sum of money available to put towards your debts all in one go. You might get this lump sum through inheritance, redundancy, selling something or even through a PPI reclaim. It’s also sometimes possible to make an offer to just one of your creditors, so that you’ll at least be able to cross one debt off your list and focus on repaying the others monthly instead. 

How much do I need to make a full and final offer?

The answer to this question depends on your situation and the particular creditors that you’re dealing with. It may be that a creditor is more likely to accept a one-off lower payment if they can see you’re really struggling to afford your payments and you’ve been missing payments for a while. 

You can sometimes offer less than the total amount you’ve got. This way, you’ll leave yourself with a little more room to negotiate with your creditors. 

How do I make a full and final offer?

You can make a full and final offer directly to the creditors yourself. National Debtline has a sample letter which takes you through what you need to say. 

If you have a lump sum but several creditors you need to clear debts with, it’s sometimes possible to make full and final offers on a pro rata basis. This means that the creditor that’s owed the most money gets the biggest offer and so on and so forth. 

You don’t have to speak to the creditors yourself though – you can get a company that specialises in this kind of negotiation to do the work for you. If you’re already on a debt solution with a solution provider, they may also provide a service where they negotiate settlement figures with your creditors. You may have to pay a fee for this service but you can sometimes benefit from the negotiating experience and good relationships that these companies have built up with the creditors over the years. 

Whether you’re contacting the creditor yourself or through a company, it’s important that the creditor receives a copy of your income and expenditure – how much you bring in every month and the essential bills and expenses you spend it on. This will show them exactly the type of situation you’re in and how long it will take you to repay the debt if you carry on making monthly payments instead of the lump sum. 

Can they ask for the rest of the money after a settlement?

When a full and final offer is accepted, the creditor will send written confirmation that they consider the debt to be settled and they will not chase you for the rest of the money – even if you were to find yourself with another lump sum of money. 

Once creditors have accepted the amount, they shouldn’t chase you again for the money. However, mistakes can happen in rare cases. If the creditor were to suddenly start contacting you again, you’d just send a copy of the letter to them to prove what was agreed. It is fairly common however for creditors to send annual statements for the debt even when it has been settled, but this is nothing to worry about. 

Will it affect my credit score?

Settling your debt in this way will affect your credit history. Sometimes this kind of agreement is marked on your file as ‘partially settled’ and sometimes it’s marked as ‘settled.’ This means companies who run credit checks on you will be able to see that you have not paid the debt in full. This can sometimes affect your ability to obtain credit at a competitive rate of interest or get a service like a mobile phone contract. Having said that, whether a ‘partial settlement’ affects your ability to borrow really just depends on the policies of the specific lender that you approach. 

Defaults stay on your credit history for at least six years so if you’ve defaulted on the debt that you’ve settled, you will need to wait for a while before it disappears. Don’t worry though, making a full and final settlement won’t extend the time that the default stays on your file – it will still drop off when it was due to. If a partial settlement is marked on your file when you haven’t received a default then this will stay on there for six years. 

But what happens if you defaulted on the debt and it’s already dropped off your record? Well the good news is that settling won’t ‘bring back’ an old default. Once it’s been on your credit history for six years, it will drop off whether you settle the debt or not. 

If you’re on a debt solution, you can ask your solution provider for more advice about full and final settlements. If you’re still looking for the best way to tackle your debts you can get in touch with one of our advisors using the options on the left. They will be able to tell you which solution is best for your circumstances. 


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.