By Dave Baddeley

Before discussing the full and final debt settlement pros and cons, you first have to understand what is involved and have a rough idea of what you are doing. Coming to a full and final settlement with creditors seems a good idea if you expect to get a good discount on what you owe them. Many creditors will accept a sum significantly below what you owe, and it might seem like a great way to save yourself money. However, try it alone and you are liable to find yourself losing out.

Why should that be? Because a creditor will be glad to come to a debt settlement if possible, but they also want it to be for the full amount or as close as they can get to the full amount you owe them. A settlement saves them the problem of expensive court action, and multiple telephone calls to you trying to get you to pay. One less person to call is, to them, one more they can start harassing for payment.

You will likely find that by this stage you are dealing with a collection agency that has purchased the debt from your original creditor, and they will settle for anything over what they paid for it, but preferably the full amount you owe. If you are still being contacted by your original creditor they might accept a fairly low offer – anything down to 20% of your debt. That’s because they will eventually write you off and sell the debt as part of a bundle to a debt collection agency, and they might offer you at least what they would have received from the collection agency.

Nevertheless, here are some pros and cons of coming to a full and final debt settlement:

Pros and Cons of a Debt Settlement

The pros outweigh the cons by a long way. Here are the pros:

1. The main benefit is that you are able to clear your debt for less than you owe.


2. The next is that having done so you will have saved yourself from future interest charges.

3. You will no longer be receiving all these phone calls from your debtors.

4. You will be able to agree with your debtors that they will provide a positive entry in your credit record.

4. You will be solvent again and be able to take on more credit if you have to.

5. You will now be aware of the dangers of overextending your credit, and understand what is facing you if you do.

6. You will feel better within yourself and not wonder what is going to come in Tomorrow’s post or whether you should leave the phone off the hook again tomorrow.

In other words, you will be free from debt and all these interminable telephone calls and letters, and will be able to start afresh with a good credit record. However, there is naturally a price to pay for all of this relief. The cons are:

1. You need the cash to be able to pay your debt settlement. Many people cannot do even this. Your savings may have to disappear, or you may have to take a secured loan on your home where you credit record is less relevant.

2. Doing this will not affect your current credit record, only any fresh entries that might no longer be made.

3. Your creditors have no legal obligation to accept your offer.

How to Arrange a Full and Final Debt Settlement

How do you arrange this? You can, of course, do it yourself and many try that. Very few are successful, and of these even fewer manage to get their creditors to agree to as low a settlement as a professional can arrange for you. Unfortunately, debt recovery companies and the collection departments of most large finance companies employ professionals that can distinguish between the amateur and the professional negotiator, and you will have very little possibility of coming to the same agreement as a professional debt settlement business.

If you personally ask how much they are prepared to settle for, they might knock 10% or even as much as 20% from the debt. You will likely jump at that, while a professional would consider that an opening offer that is not expected to be accepted by you. This is nowhere near the 80% that a professional can negotiate, though not all settlements are as much as that.

You can rely on having your debt cut by half. Although no company will offer you any guarantees because some debtors are totally intransigent. Nevertheless, even with them a good professional can often come to an arrangement. Much depends on the number of other creditors you have.

However, in the final analysis, a debt settlement that is full and final clears your debt totally, even though it is significantly below the amount you owe. That’s far better than going bankrupt, coming to an IVA or even, in Scotland, a Protected Trust Deed. You can leave with head held high, having cleared all your debts and even feel proud that you have done so and paid a lot less than you owe.

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