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What is a Debt Settlement Offer?

A ‘Full and Final Settlement Offer’, or Debt Settlement Offer (DSO), is a way to pay off a debt with one, large lump sum. It can happen if you have recently had a ‘windfall’ of money, such as an inheritance, or if a friend or relative is willing to give you a large sum of money. Essentially, you ask your creditor or creditors if you can give them one lump sum payment in exchange for writing off your debt with them.


Step One:

When you are certain that you have access to the lump sum, contact your creditors.

Step Two:

Make a compelling case to your creditor. For example, explain how your circumstances are unlikely to change for the better in the future, that this lump sum will not be available forever and that the friend who will make the payment will not make the payment unless the offer is accepted, in full and final settlement of the debt.

Remember to ask for your debt to be written off in exchange for the large sum and for your credit reference file to be updated after the sum has been paid to reflect that the balance has been paid.

Step Three:

Do not do anything until you have confirmation in writing that the creditor will accept the large sum, will write off the remainder of your debt and will update your credit reference file.

Keep a copy of this. Sometimes disputes happen years later and the letter is your evidence.

If the amount is particularly large, you could pay for a formal agreement to be drawn up by a solicitor, which would be signed by you and your creditor. This is not normally necessary.

Step Four:

Once you have written acceptance of the agreed offer, pay your creditor the agreed amount. If possible, have your friend send the amount. Their role as a third party will make the agreement more legally binding.

If you would like to check your credit reference file, you can request a copy. You should expect to see the account closed and your balance at ‘zero’.

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DSOs and multiple creditors

It is possible to pay multiple creditors with one lump sum, if they all agree. This would mean you need make a ‘pro-rata’ offer. This involves dividing the lump sum amount between them in the proportion you owe them

Step One:

Find out the exact balance you owe to each creditor

Step Two:

Work out how much of the lump sum to offer to each creditor:

(Lump sum available to you x the exact individual debt owed to one creditor)

÷ Total amount that you owe to all your creditors

= amount to offer to that creditor

So, if you owe £3200 to a credit card company, £800 to a pay day loan company and £1000 to your bank, but have a lump sum of £3500, you should offer:

(3500 x 3200) ÷ 5000 = 2240              £2240 to the credit card company

(3500 x 800)   ÷ 5000 =  560               £560 to the pay day loan company

(3500 x 1000) ÷ 5000 =  700               £700 to your bank

Step Three:

Write to all your creditors offering them their amount and fully explaining your circumstances. Demonstrate your calculations so they know they are being treated fairly

Step Four:

Get acceptance in writing

Step Five

If some creditors refuse, ask them to reconsider and tell them if any of the other creditors have accepted. If they refuse again, call us to discuss your options

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Get Advice and Help

The most importance piece of advice to remember with a DSO is – get everything in writing!

Other than that, it is important to remember that your creditors are under no obligation to accept your offers. If they don’t, there are many other debt solutions available to you. For more advice on debt and debt solutions, please call us on: 0808 253 3433 or text ‘ADVICE’ to 60060

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