With the plethora of loans that an individual or a household may have, a full and final debt settlement can mean many things and have different advantages. A full and final settlement is offering to pay the creditor a lump sum which is less than the amount owing. For instance, if the balance owed is five thousand dollars an offer is made to pay a portion of this amount in return for the balance being written off by the creditor.

The creditors are willing to write off the balance of the debt in return for receiving a lump sum. This is advantageous to the creditors because they receive most of the money owed within a short period of time instead of having to wait for months or even years to get the full payment.

A debtor can only make such an offer if they have the means to come up with the lump sum. This can happen in many ways. This may be an unexpectedly large tax refund, an inheritance or even a large gift from a family member or friend.

The offer being made should be a percentage of the outstanding balance of the debt. All creditors should be contacted at the same time and the offer made on the same basis. When the creditors accept that the debtor is reasonable and all of them are being treated equally, they will be more open to accepting the offer.

The offer should be calculated using a specific formula, based on the total debt, the funds available and the balance of each individual creditor. Assume that there are five creditors who are owed ten thousand dollars in total with each creditor’s balance being two thousand dollars. If the total funds available to the debtor is five thousand dollars, then each creditor would be offered one thousand dollars as a full and final settlement. This amount is calculated by using the formula: the total funds available of five thousand dollars, multiplied by each creditor’s balance amount owing of two thousand dollars, and dividing by the total debt amount of all creditors which is ten thousand dollars.

Specific steps should be followed when making the offer and the payment. A table should be set up showing the amount being offered to each creditor in relation to the balance owing and the total funds available to the debtor.

Always make the offer in writing and keep a copy of the letter. The letter should have all the relevant details such as the full debt amount, the full and final settlement offer and the date on which payment can be made. Include a copy of the table set up above to each creditor.

The creditors should be requested to write off the remaining balance of the debt and also note that the debt was settled in full on the credit reference file. The lump sum payment should only be made once the offer is accepted in writing and the conditions agreed to.

The fact that the creditors are receiving a portion of the debt as a lump sum in the near future and not having to wait for months or years to receive payment in smaller instalments is an attractive proposition for them. By making a full and final debt settlement offer the debtor can be free of debt sooner.

Get exclusive inside info on how to make a full and final debt settlement offer now in our review of DIY Debt Settlement .