What is a Debt Settlement Offer?

Debt Settlement Offers, also known as full and final offers, are a way for people to deal with their debts by offering a lump sum to a lender to settle your account.

People often turn to this solution if they end up with a lump sum in the form of inheritance money, takings from a sale of an asset such as your house or car or a gift from a friend or family member.

The money is split as equally as possible amongst those that you owe money to then settle your accounts. If it isn’t enough to clear your debts in full, then it’s possible to make an offer to your lenders to accept a lesser amount in exchange for writing the remaining balance off.

For the most part, this type of solution is carried out by you as the consumer, which involves a lot of negotiation. However, in some cases, you may be offered the opportunity to settle a debt for less than the outstanding balance by a lender.

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What percentage should I offer to settle debt?

How much you should offer a lender to settle your account will depend on the balance of the debt. It’s possible to settle a debt for anywhere between 30% and 70% of the balance owed, but it’s important to remember that this will need some negotiation and lenders aren’t obligated to accept your offer.

It’s best to be tactical with this and use the many formulas available online to help you work out how much to offer.

However, if you have enough to pay your debts in full, it’s best to do so. This looks more favourable on your part than if you were given enough to clear your debts and chose not to.

Debt Settlement Offers advantages and disadvantages

This type of solution can seem like all pros and no cons, but that isn’t the case at all. As such, we’ve laid these out for you below:


  • Your debts will be paid, and you won’t need to worry about them anymore
  • Having cleared your debts, you can begin to rebuild your credit score
  • It will stop lenders chasing you for accounts
  • Even if you only pay off one account, your debt level will still be lowered which will help you with your other debts.


  • Lenders are not obligated to agree to the settlement
  • You need a significant amount of money to be able to make an offer
  • If you stop making payments whilst negotiating the offer, your credit score could be negatively impacted
  • Whilst your debts will be noted on your credit file as settled or partially settled, they will remain on your report until six years have passed
  • Future lenders may not look favourably on the fact that you didn’t pay the balances in full

The Debt Settlement Offer process

This solution can seem fairly straightforward, but it can be very easy to make a wrong calculation somewhere or have negotiations break down. As such we’ve laid out the process below for you to help:


Once you know how much money you have, you then need to calculate how much to offer to your lenders.

If your lump sum is enough to clear your debts, then this will be very simple and all you need to do is pay off how much you owe. However, if you’re dealing with an amount that isn’t enough to pay off your debts, then you can use the formulas available online to work out how much to offer each one.


Now it’s time to make the offer to your lenders. You should always ask them to confirm their decision to you in writing and never send them any money until you have this.

It’s important to keep any letters, emails or messages from your lenders regarding your offer for a good amount of time after you have settled the accounts. This should be done as a security measure should you need to refer to them at any time.

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In some cases, some or all of your lenders may not agree to the settlement offer. In these situations, you will need to negotiate with them individually.

This can sometimes end up in you paying a higher amount to one lender, leaving you no choice but to make a payment plan with the others to help repay the remaining balances on your debts.


Once you have everything confirmed in writing, you can then go ahead and make the payments to your lenders. The accounts should then be closed down – unless arrangements have been made for you to either continue making payments or using the account.

This will then also be reflected on your credit report by marking the debts with the relevant ‘flags’. It’s important to know that once this has been done, it can be seen by other lenders, which may have an effect on your future credit applications.

They will remain there for six years and will be removed after this time has passed. After they have been removed, your rating will then become unaffected.