If you owe considerable unsecured debt and want to prevent further financial decline, making a full and final settlement offer to your creditor(s) might be a good option. It can free you from the burden of debt, and also save your creditor money in the long-term by not having to chase payments.

So how does full and final settlement work, and could it help you escape your debt situation?

Full and final settlement of debt involves using a cash lump sum to repay some of the outstanding amounts owed. The main premise is to write off a proportion of this unmanageable debt, without having to enter formal insolvency.

It’s an alternative to offering payment in instalments, and can bring to an end a very stressful situation. So how would you access a cash lump sum?

You may have been made redundant, or received an inheritance, but there are a range of other circumstances that could give you access to cash, including:

• Making a successful claim for PPI
• Selling an asset or downsizing your home
• Compensation following an accident
• Drawdown of your pension
• Money lent by a family member or friend

When deciding how much to offer your creditors, it’s a good idea to calculate how much your lump sum represents as a proportion of your debts. As an example, if you owe a total of £10,000 and the lump sum is £6,000 (60%), you should offer each creditor 60% of their debt.

Chasing payment is a costly process for your creditors, and you may find that they’re willing to accept your offer simply to end the present situation. If your creditor accepts the offer, your debt will be marked as having been partially settled in your credit record. This remains on the credit file for a period of six years.

You should put your offer in writing, and keep a copy for future reference. If your offer is accepted, it’s also important to receive written confirmation from your creditor, and this should be retained for six years. You’ll need to ensure that payment is made by the date due, and also request a receipt as proof of payment.

It may be worthwhile making one offer of full and final settlement of a particularly expensive debt, and improving your situation further by informally negotiating more time to pay the other creditors.

Full and final settlement offers can help you escape the debt spiral and regain control of your finances. Your creditors also benefit from recouping a proportion of their money, without having to wait, or chase payments indefinitely.

For professional assistance in making an offer of full and final settlement, contact our expert team at Northern Ireland Debt Solutions. We’ll ensure you take the right steps, and stand the best chance of acceptance by your creditors. Call one of our licensed insolvency practitioners to arrange a same-day appointment free-of-charge.