Debt settlement, also known as debt arbitration, debt negotiation or credit settlement, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment to close the account and not take any further action.
The reason creditors accept less than full payment is because they may wish to remove any further risk of recovering what is owed to them.
However, only unsecured debts such as loans or credit cards can be settled this way – mortgages, hire purchase agreements, tax debts and student loans are excluded.
In order to negotiate with a creditor or their agent you will need a cash lump sum. Alternatively, there may be a third party such as a family member who would be prepared to help.
If you have defaulted on a credit card or loan payment you may find yourself dealing with the debt collections department of the lender. However, be aware that creditors do not accept all offers made to them and must be convinced that any offer made represents the best outcome for them.
In some instances you could end up dealing with a company that has bought your debt. These companies have bought the debt from the original creditor at a fraction of the outstanding balance and may be prepared to accept less than the full amount owed.
Registered in England & Wales Company No. 07352110 l Registered Office: Archer House l Britland l Northbourne Road l Eastbourne l East Sussex l BN22 8PW l debtrescue and the debtrescue logo are all trading styles of Debt Rescue Limited which is authorised and regulated by the Financial Conduct Authority l Licence No. 639163