Debt Settlement Offers
Debt Settlement Offers
What is a Debt Settlement Offer?
A debt settlement offer (DSO), also known as a full and final settlement offer, is a way to pay off a debt in one large lump sum.
A debt settlement offer is a debt solution that allows you to repay what owe with one lump sum payment. This is often also referred to as a full and final settlement offer.
If you find yourself with a financial ‘windfall’ such as an inheritance or money from a friend or relative a debt settlement offer could be viable option to clear your debts. Money from compensation, the sale of an asset or pension if you’re over 55 could also be included.
If the lump sum is less than what you owe, you can make a debt settlement offer with the people you owe money to agreeing to write off any debt left over once you offer the lump sum.
The money is shared equally amongst all of your debts, or, if you don’t have enough money to cover this you can opt to settle specific debts.
A debt settlement offer will appear on your credit file as ‘partially settled’ which shows future creditors that the debt you owed wasn’t repaid in full. This will appear on your credit file for six years.
Debt Settlement Offer with multiple creditors
If you owe money to a number of creditors it is possible to pay with one lump sum if they all agree.
By doing this you’d make a ‘pro rata’ offer which involves dividing the lump sum amount between creditors in proportion to what you owe.
The process of arranging a DSO with multiple creditors is much the same as if you’re only paying one, however, you are required to work out how much of the lump sum to offer each creditor.
The calculation is simple:
Multiply the lump sum by the exact individual debt owed to one creditor.
Divide this by the amount you owe to all creditors
Total is the amount to offer to that creditor
Please refer to the example below for further advice:
If you have a lump sum of £3,500 and owe £3,200 to a credit card company, £1,000 to your bank and £800 to a pay day loan company, you should offer:
(3500 x 3200) ÷ 5000 = 2240 £2,240 to credit card company
(3500 x 1000) ÷ 5000 = 700 £700 to your bank
(3500 x 800) ÷ 5000 = 560 £560 to the pay day loan company
What happens if a Debt Settlement Offer is rejected?
If your application for a DSO rejected there is potential to use the money you have acquired and for an IVA if you’re a resident of England, Wales or Norther Ireland, or a trust deed in Scotland. You could enter into either of the options above and rather than pay monthly you could agree to clear what you owe using a one-off payment.
Frequently Asked Questions
It is a debt solution that allows you to pay your creditors in one lump sum. It is also commonly referred to as a full and final settlement offer. The money is shared equally amongst all of your debts, or, if you don’t have enough money to cover this you can opt to settle specific debts.
Asking for a settlement on your own won’t hurt your credit score. However, succeeding in obtaining a settlement, or skipping payments as some settlement companies will advise you, will have an adverse effect on your score. This type of debt relief can actually be as damaging to your credit score as bankruptcy can, because you aren’t paying the balances in full.
You will be required to do some math to work out how much to offer. We suggest multiplying the lump sum by the exact individual debt owed to one creditor, dividing this by the amount you owe to all creditors and the total is the amount to offer to that creditor. We have provided an example for this above.
Settled accounts will generally stay on your credit report for seven years from the date it was reported settled, which will have a negative impact on your credit score as you are settling the debt for less than originally agreed.
If your offers are rejected by your creditors, you may be able to use the money to apply for other debt solutions such as a Trust Deed, or an IVA if you live in England, Wales or Northern Ireland.