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17.04.2018

What should you put in a Debt Settlement Offer Letter?

If you are struggling with a debt problem and come into a windfall, or have a loved one who is willing to give you a lump sum of money to help with your debts, you may be able to solve your financial troubles with a Debt Settlement Offer (DSO). This means you ask your creditors to accept a reduced lump sum payment in exchange for the remainder of your debt being written off.

The Letter

Without a doubt, the most important aspect of a DSO is what you put in the offer letter. You should make sure that you include:

  • Your Account Number, Address and the Date
  • A detailed account of your circumstances, such as why you can’t pay your debt and why your situation is not likely to improve for a while. If possible, attach a detailed account of your income and expenses to your letter to illustrate your point.

‘Dear Sir/Madam,

Without Prejudice

Account Number: 0000

As of [date] you hold a debt of £3000 under my name. As you are aware, I have missed the last three payments and been struggling for some time trying to meet just the minimum payments. This is because I was made redundant in August last year and, while I had hoped I would find regular employment quickly, I have been struggling to find anything that can pay enough to support myself and my family; let alone pay my debts. I have only an occasional, fluctuating part-time income of less than £240 a month and, after our food, toiletries, and other expenses, I rarely have a substantial surplus income (see Income and Expenditure Statement). I am unable to pay the money which I owe in full. Therefore, I would like to propose a Full and Final Settlement Offer to settle my debts.’

  • Where you are getting your lump sum from, and why it is only available to you now.

Tip: It can help to make the agreement more legally binding if the money moves through a third party.

‘My father, who we have moved in with, has kindly offered to help me gain a fresh financial start and is willing to use his savings of £8,000 to pay off all my debts. This is all that we have to pay off the £12,000 in debt that I have in total and my father is only willing to use it for this purpose. As you can imagine, I am using my father’s savings as a last resort, and so will only take the measures to release them upon my creditors’ agreement to the offer. Your share of the £8,000 will be transferred from his bank account if we receive written approval of my offer.’

  • The offer, including calculations. (Amount owed to single creditor ÷ total debt) × Lump sum amount = Amount to offer the creditor

‘I have 5 creditors, who I owe £5,000, £2,500, £1,250 and £250, as well as yourselves who I owe £3000. Proportionately, therefore, I propose to pay you all 66p to the £ of what I owe you. This means the other creditors would get £3,333.33, £1,666.67, £833.33, £166.67 respectively and you would get £2000.

  • Your terms: that you will pay the amount if they accept in writing, take no further action to collect or enforce these debts, release you from any liability and update your credit reference file.
  • You may also want to set a time frame in which you will pay them.

‘I will gladly pay you £2,000 on the understanding that you update my credit reference file to show that it has been closed and settled, take no further action to collect or enforce this debt and release me from any liability.

If you choose to accept this offer, please provide me with written acceptance of the above terms. I will pay you the £2,000 within 28 days of their receipt. Please include details of how best to pay the amount.

Yours faithfully,

Jane Smith’