Clearing Debts as cheaply as possible

dvdj

Hi,
Long (very long!) story short... have 23000 pounds worth of debt, paying £637 a month through minimum payments. A very good friend understanding the ins and outs of my predicament is loaning me £20,000.

I have heard that you can approach a creditor and basically say "I currently owe you £12,000 I have come into some money, would like to offer you £10,000 to satisfy my debts and cancel my card".

a) Is this true and possible?

b) What is the protocol? How do I approach and bar ta?

c) What is the downside to doing this if it is possible?

Many thanks in advance for any help or advice

foxwales

I don't think this would sway with creditors; unless this lump sum was the only opportunity they would have in getting their money back.

As you have a regular income; im assuming; you would need to submit a very good financial statement of affairs to them to prove that after the 20k had been spent that you had no income left to pay towards the remainder debts.

SO in short; the answer to your question is no.

Creditors are only ever likely to accept a part payment offer such as this if the debtor is likely to go bankrupt.

dvdj

Thank you Foxwales, for such a speedy and helpful response.... thought it was too good to be true

foxwales

Well you have 20k to pay off your debts; leaving you with only 3k!

Still; you will have to pay back your friend; but atleast you will be free from the interest!

Something to be happy about eh :T

NickX

What you are referring to is known as "Full and Final settlement". This is where you agree a reduced payment figure with your creditor and pay this in one go for which in return they settle the account and agree not to persue you any further.

This does happen from time to time, and I have known creditors accept as little as 30% of the original debt (actually I've known the lot written off but this is usually due to a legal technicality).

However, to reach such a settlement is a lengthy process and you would need to give the creditor the impression that they are going to be lucky to get anything more from you. This means missing multiple payments, letting the account go into default, and probably having the creditor sell the debt to a DCA (Debt Collection Agency). Naturally this will damage your credit rating for several years.

So, in essence, YES it can be done, however it is not a quick or easy process, and is really only adviseable if you are struggling to pay and are not so concerned about your future credit rating.

Good Luck!