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What is a settlement?

A lump sum payment paid to your creditors made as a full and final payment to your debts or a partial payment towards the final amount.

There are two types of settlement offer:

  • A Full and final settlement is when a settlement is in full and recorded as ‘satisfied’ on your credit report.
  • A partial settlement is a lump sum lesser than the amount of your overall debts. This will be recorded as such on your credit report but creditors will no longer be able to chase your outstanding payments.

Is a debt settlement a good idea?

A settlement offers someone with a lump sum of money a chance to pay off their debts in a one-off payment and avoid rising interest or late fees.

As a partial settlement there is the opportunity to write off some of your debts if the partial offer is accepted the remaining amount owed will be wiped. Though there are drawbacks, creditors do not have to accept a partial settlement offer, however, we can negotiate on your behalf.

The partial settlement will also be recorded on your credit score and future lenders will see that your prior debts were not paid in full.

When should I consider a debt settlement?

If you have suddenly come into a windfall of money or have recently sold an asset for a lump sum amount, a settlement is a good way to pay off your debts in a one-off payment over prolonged monthly or annual payments.

These windfalls typically include inheritance, compensation, pensions or the sale of an asset.

Creditors will usually accept a settlement offer if it is unlikely you will be able to repay the total amount otherwise or if your repayments would take too long.

Debt Settlement Offer Pros and Cons


  • Can write off some of your debts
  • Stops legal action from creditors
  • Pay off your debts quicker


  • Partial payments will remain on your credit score for six years
  • Creditors can reject your offer

Applying for a Debt Settlement offer

Unlike other debt solutions, a settlement offer doesn’t require you to have a financial advisor to make on offer and any settlement offer can be made directly to your creditors. That being said, it is always advised that you speak to a financial advisor and find out how we can negotiate on your behalf for a better deal.

You can contact your creditors, usually through a settlement department and explain your financial situation. A settlement is usually considered under particular financial situations, so explaining your current financial issues or concerns before making an offer is usually a good idea. 

It’s likely that some negotiating will take place over the percentage of your debts being offered, for example, if you offer an amount totalling 50% of your overall debts, they may counter with an amount of 70%. Ultimately, what is considered a fair amount will be dictated by your creditors.

Does a debt settlement offer affect my credit rating?

A partial settlement will, like most credit solutions, have a negative effect on your credit score.

As the final payment will be marked as ‘partially paid’ this will signal to creditors that the full amount was not repaid, despite the amount being settled and agreed upon.

This negative effect will remain for six years post the settlement agreement, after which it will be removed, and you can begin rebuilding your credit score.

Are you struggling with debt?

There are always solutions, no matter what your situation.

Does a debt settlement offer stop bailiffs?

Dependent on if your creditors agree to your settlement offer, once a settlement is agreed upon by your creditors any legal action to retrieve the outstanding amount must cease. This would include the use of bailiffs to extract outstanding debts from you.

It’s important that once a debt settlement offer is agreed and accepted by your creditors, that the offer is officially signed in writing. A verbal agreement may not hold up and it’s possible that creditors will sell the remaining amount to collections agencies.

What should I do if my debt settlement offer is rejected?

If a creditor rejects your DSO, it may be worth looking into another debt solution, such as an IVA or a Debt Management plan. Both debt solutions allow you to make a lump sum payment during your repayment period.

A MoneyPlus advisor would be able to guide you towards the debt solution that would best work for you, so speaking to an advisor is always the best course of action.

Debt Management Plan

A Debt Management Plan is an informal agreement between you and your creditors to pay back your debts with one affordable monthly payment, without taking on more debt.

Debt Relief Order (DRO)

A DRO is an alternative to bankruptcy for people with debts of less than £30,000 (£20,000 in Northern Ireland) and less than £75 a month in disposable income. 

To find out more about managing your debt and receiving free debt advice visit www.moneyhelper.org.uk or read Options for paying off your debt.