Full and Final Settlement Offers on Debt

What is a full and final settlement?

A full and final settlement is an agreement in which you pay a lump sum, usually less than the full balance, and the creditor agrees that this clears the debt completely. Once paid, the creditor cannot ask for the remainder. The offer must be clear that it is made on that basis, and the creditor must accept it before you pay. Without that agreement, a payment is treated as a part payment, and the creditor can still pursue the rest.

When does a settlement make sense?

Settlement offers can work when:

1. You have a lump sum that you can afford to use without leaving yourself short of essentials
2. The debt is large, old or hard for the creditor to collect
3. The creditor would otherwise receive little through other routes
4. You are in genuine financial difficulty and cannot repay in full

How much should you offer?

There is no fixed rateFixed-rate mortgageA fixed-rate mortgage has an interest rate that stays the same for an agreed period, so your monthly payments do not change during that time.Read more →. Settlement amounts vary with the age of the debt, who owns it, your circumstances and the creditor's policy. You might open with a lower figure and be prepared to negotiate, but only offer an amount you can actually pay. Be honest about your circumstances, and provide a budget if you are claiming hardship. A free adviser can advise on a reasonable approach for your situation.

How to make an offer

1. Check the debt. Ask for a statement and confirm who owns it and how much is owed.
2. Prepare your budget. Show why you cannot repay in full.
3. Write to the creditor. State the amount you are offering and that it is in full and final settlement. Say that the offer is conditional on written acceptance.
4. Do not pay yet. Wait for the creditor to accept in writing.
5. Pay by a traceable method, such as bank transfer, and keep proof.
6. Get written confirmation after payment that the account is closed and nothing further is owed.

Protecting yourself

• Written acceptance before payment is essential. A phone call is not enough.
• Make clear the debt is settled in full, and ask for the account to be closed.
• Check the credit file afterwards. The account may be marked as "settled" or "partially settled" and the record of missed payments stays for six years. See how to check your credit report.
• Check who you pay. Debts are sometimes sold. Make sure you are paying the current owner.
• Keep all records, including the offer, acceptance and proof of payment.

Old debts

For very old debts, check whether the debt may be statute-barredStatute-Barred Debt: The Six-Year Rule and UK Time LimitsIs your debt too old to be enforced? Learn the UK time limits, what restarts the clock, how it differs from your credit file and what to do before replying.Read more → before you offer anything. Paying or acknowledging an old debt can restart the limitation clock. See statute-barred debt. In some cases, the best answer is not to pay at all.

Settlement scams

Scammers target people in debt. Warning signs include cold calls offering to settle your debts at a big discount, requests for upfront fees, pressure to pay within hours, and requests to pay into a personal account or by gift cards. A real creditor or collection agency will give you written details and use official channels. If in doubt, contact the creditor directly using a number from an old statement. Report scams to Action Fraud. See debt collection in the UK.

Settlements and formal solutions

If you have several debts and cannot settle them all, a formal solution may be fairer. Using a lump sum to settle one creditor and ignoring others can cause difficulties, particularly if you later enter an IVA or bankruptcyIVA vs DMP vs DRO vs Bankruptcy ComparedA side-by-side comparison of the main UK debt solutions: IVA, debt management plan, Debt Relief Order and bankruptcy, with costs, length and consequences.Read more →, where preferring one creditor can be challenged. Speak to a free adviser first. See free debt advice in the UK and can debts be written off.

A worked example

Suppose you owe £5,000 on an old credit cardHow Credit Cards Work in the UKHow UK credit cards work: interest, APR, minimum payments, interest-free periods, fees, Section 75 protection and how to use a card without getting into debt.Read more → debt that has been sold to a collection agency, and you receive £2,000 from a relative. You check the debt is genuine and not statute-barred, then write to the agency offering £2,000 in full and final settlement, explaining your circumstances. They reply offering to accept £2,500. You decide you can afford £2,200, counter-offer and they accept in writing. Only then do you pay by bank transfer, and you keep the acceptance letter and the receipt. A few weeks later you receive written confirmation that the account is closed. You also check your credit reportHow to Check Your Credit Report for Free in the UKHow to check your credit report for free with Experian, Equifax and TransUnion, what to look for, what a statutory report is and how to spot signs of fraud.Read more → to confirm the entry is updated.

When not to settle

Do not settle if it leaves you short of money for essentials, if you have other more serious debts, if you may enter an IVA or bankruptcy soon, or if the debt may not be yours. Take advice first in each of those cases.