How Can I Settle a Debt For Less Than The Full Balance?
When you fall into arrears with an account, it seems as though between the interest being charged, the late fees, and any other fees and charges being assessed, the balance on the account just goes up and up.
You may start out owing £1,000, and after a few months the balance may over £1,100 or more.
It can make one feel like they will never get out of debt.
Add to this the collection notices, and calls, it can make for a stressful time.
And collectors and collection agencies know this as well. They want to resolve the situation quickly, get payments coming in for the account(s), and in the end get the account paid in full.
In some instances a collection firm may have purchased the account, they bought the debt, so now they own the debt.
If a bank or lender has a debt/account with a £1,000 balance, they may sell the account for pennies on the pound,, maybe sell it for £500 or less.
The collection firm now owns the debt, and you now owe the collection firm.
When collection companies buy debts in this manner, they want to try and get their money back quickly, and in some instances they may offer the debtor a settlement offer. An offer to pay the debt off in one payment of less than what was originally owed.
If you owe £1,000, the collection firm may send you a one-off settlement offer of £750, or some amount less than the original £1,000 balance on the account.
Settlement offers are a good way to get out of debt, but there are a few caveats to this process.
One is how the account may be reported to the credit bureaus. The account may be reported paid for less than what was owed. Which is not paid as agreed, but the fact is, the account will show a zero balance, which in itself is good.
Settling an Account
Settlement offers on an account can begin in many ways, but usually it is the creditor/bank/lender who initiates the offer.
However, as the account holder or debtor, we can initiate the settlement offer as well. We can speak to a lender and discuss settling the account for less than what is owed. However, we may find it difficult to begin as we may not have any knowledge or experience in this.
Do we starts at 50% of the balance, 75% of the balance???
In most instances, the creditor is going to have that “magic number” of what they will accept as a settlement amount.
Regardless of the amount to pay, there has to be some factors involved.
Need to be in Arrears: The account needs to be in arrears. Why you may ask? A creditor is not going to entertain the thought of getting paid less than the full balance if you are paying on time and not in need of any help.
As to how far in arrears you need to be can vary. In some instances, the longer an account goes unpaid the more a creditor may consider a settlement.
Need the Cash to Pay the Settlement Amount: If you want to settle an account for less than what you owe, you need the money to pay the agreed settlement amount.
If a creditor offers you a settlement deal of £500 for a loan with a balance of £1000, you need to have the £500 to pay the agreed settlement amount.
May be Able to Make 2 or 3 Large Payments: In some instances a creditor may agree on a settlement figure, and allow you to pay the amount in 2 or maybe 3 large payments. This again means you need the funds and ability to pay these payments.
Sometimes a creditor will send out an unsolicited settlement agreement. The creditor may make the offer even without you contacting them to discuss a settlement.
These offers can be a good way to pay off a debt/account, however, once again, you need to have access to the money to pay the settlement amount.