What Is A Full and Final Settlement of Debt?
Full and final settlements are an informal way of writing off a part of a debt. They are an agreement between the debtor and creditor that if a certain amount of the outstanding debt is repaid, the remainder will be written off and no further recovery action will be taken.
How Does It Work?
The most common scenario for arranging a full and final settlement is when the borrower has come into a lump sum of money, such as through retirement, a remortgage, inheritance, or any other windfall. Although there might not be enough money to completely clear the debt, many creditors are happy to negotiate a smaller payment to get a troublesome debt resolved, even if not totally cleared.
How much of the debt you can write off depends on many things, including how much you owe and how far behind you are in repayments - your application for a full and final is unlikely to succeed if you have not been having any problems servicing the debt.
How Do I Arrange A Settlement?
As these settlements are informal arrangements, you don't need any special licence or qualifications to set one up - you can simply write to the company concerned, make them an offer, and see what happens.
There are however professionals who can deal with the negotiations on your behalf, and although they will charge a fee for their services, their experience and lack of emotional involvement will often mean they can achieve more success in getting a larger amount of debt written off.
Is There A Catch?
Magically canceling some of your debt might seem highly attractive, but there is of course a drawback. Even if you've agreed a final settlement with your creditors, not fully paying the debt will still often result in a default notice being placed on your credit file, with all the implications for your credit worthiness that this will cause.
The fees charged by any agencies you use to negotiate the settlement can also be fairly high, although in most cases this should be done on a no-win no-fee basis, and you'll know how much you'll have to pay before agreeing to the service.
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- Priority Debts
- Debt Survival Strategies
- Why You Should Tell Your Creditors About Your Debt Problems
- Who Can Help With Debt?
- Debt Priorities
- 5 Steps To Fighting Debt
- Don't Ignore Your Debts!
Site is for information only and does not constitute financial advice. E&OE.
