Making debt settlement offers, you could clear all of your outstanding debt balances by agreeing to pay a one off lump sum (which can be much less than the total amount outstanding), rather than making smaller payments over a longer period of time.
Debt settlement is often called a full and final settlement. This is where an agreement is made to settle a debt, in one go, but for a lower figure than the total amount outstanding. This usually happens if the person owing money has been able to secure funds from elsewhere – such as through the sale of a property or by releasing equity or re-mortgaging.
Other ways you could settle debts in this way could be through an inheritance, or if a friend loans you the money – although be sure to come to a realistic and fair agreement before accepting money from a friend, so that your relationship isn’t affected.
In some instances, we’ve seen lottery winners who have wanted to discharge their debts in one go, but through debt settlement they can repay much less than they would otherwise need to. It is important to note that creditors will usually only consider a discounted debt settlement arrangement if a consumer is in financial difficulty, and behind with their contractual monthly repayments.
Information on other debt settlement options
If you haven’t been able to get a loan, or you don’t have a lump sum of money available for a debt settlement, there are other ways to become debt free. These include debt management plans, Individual Voluntary Arrangements (IVAs) and Trust Deeds.
A debt management plan is a way of gathering debts together and rescheduling them, to make them easier to manage and more affordable each month. Debt management is an informal and flexible way of repaying debts, as repayments can be altered to your changing circumstances. This means that if you are promoted and want to pay off debts quicker, you can increase how much you repay each month. Likewise, if your earnings fall, you can alter your repayment and lower the amount you repay each month. Also, with a debt management plan, we negotiate with your creditors to reduce or freeze the interest and charges on your accounts. click here for further information on debt management plans.
Individual Voluntary Arrangements (IVAs) are similar to debt management plans in that balances are joined together into one monthly payment, and the repayments are calculated to be affordable. An IVA is repaid over a fixed length of time, usually 5 years, after which all unsecured balances are effectively written-off and you become debt free. An IVA is generally for people with larger outstanding balances and requires a qualified insolvency practitioner to arrange – it involves a legally-binding agreement with your creditors. This is a good thing, as it means that they can’t change their repayment demands or the terms of the agreement. For further IVA advice click here.
Trust Deeds are an effective long term debt settlement alternative, for people living in Scotland, and work in a similar way to an IVA. A Trust Deed is repaid over a fixed period too, but unlike an IVA the term for a Trust Deed is usually three years. For more information on Trust Deeds and all of our other debt solutions, please click the relevant link.
Debt management, IVAs and Trust Deeds will ultimately achieve debt settlement, if a consumer is unable to raise a lump sum. They do not involve taking out a further loan to do so. This means that these debt settlement methods won’t get you further into debt.
If you would like a specialist adviser to go through all of your debt settlement options, please call the number at the top of this page. We can offer free and impartial debt advice that enables you to make an informed choice about your finances.
