If you’ve recently come into a large sum of money and you need to pay off some debt, consider a full and final settlement with your creditors. Through a full and final settlement, you would offer your creditor a lump sum of money that’s less than the full amount you owe. If the creditor accepts your offer, make sure they also agree to cancel the remaining portion of your debt. Just like that you’ve gotten your debt out of the way.
How to Make a Full and Final Settlement Offer
More often than not, you must have fallen behind on your payments enough for your debts to be possibly referred to a collection agency. Creditors will almost never accept full and final settlement offers on accounts for which all the payments are current.
To make an offer for a full and final settlement, send a letter to your creditor or the collection agency which offers a settlement amount. In the letter, you should include a brief sentence stating why you are unable to make payment in full. For example, you may have expensive medical bills or a recent job loss. Your letter should also include the amount of the full and final settlement you’re able to pay and a statement that if the creditor accepts the offer they will no longer pursue the remaining amount of the debt.
If you don’t feel confident making your own full and final offer to the creditors, you can hire a debt settlement company who would make these negotiations on your behalf.
How Much Should You Offer
It’s common to make an offer between 20 percent and 60 percent of the total amount that’s due. For example, if your debt is $10000 you would make an offer between $2000 and $6000 depending on what you can afford.
When the creditor responds to your letter, they may make a counteroffer that’s more or less than your original offer. At that time, you can decide whether you can afford to pay this counteroffer or whether you must wait to accumulate additional funds. When you’re ready to pay the offer, make sure you have a signed full and final settlement letter from the creditor and send a check to the creditor for the settlement amount.
After the Full and Final Settlement
Note that there is probably a downside to making a full and final settlement with your creditor. While you get the benefit of paying less than the full amount you owe, the creditor will likely add a mark to your credit file stating a settlement was made on the account. Such a mark could remain on your credit file for seven years and could influence decisions made on your future credit card or loan applications. Any other negative marks, like a default notice, could also stay on your credit report for seven years.
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