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Money Matters: 'Will a partially settled debt affect my future borrowing?'

Debt advice from the Kevin Boon of the Consumer Credit Counselling Service

The sixth in our 'ask the expert' series, which sees Kevin Boon of the Consumer Credit Counselling Service (CCCS) answer a question on settlement offers.

Q: Hi, I really need your advice. Nat West has allowed me to settle a £1800 debt for £700 which I' m currently paying back at £7 per month. It sounded like an amazing option at them time but I have now been told by Nat West that the account will only be listed as 'partially settled' and although they will not chase me up or sell the debt on, the amount outstanding will always show on my credit rating. Is this normal and should I accept? Also how are partial settlements looked upon by mortgage lenders for example? Thanks. - Becky, Liverpool

A: Hi Becky, thanks for getting in touch. Accepting a settlement offer is often a good way in which to clear a debt for a lesser amount if you have the money to do it. However I would be wary of accepting any arrangement whereby they claim the amount outstanding would still be shown on your credit file, as this may leave you in a position where they make a claim for the additional amount at a later date. I would be inclined to contact them and advise them you will only consider a settlement on the understanding that you get confirmation in writing that the amount paid is a 'full and final settlement' and they will not pursue you for any shortfall at a later date. Also take into account the amount of days they give you to pay the settlement and make sure you stick within this timescale.

It's common practice for a lender to update your account as 'partially settled' simply to illustrate to future lenders that you did settle a debt for less than the full amount. This may have a negative impact on future lending decisions, but if you are repaying a debt of £1,800 at £7 it's likely that Natwest will issue a default notice at some point anyway. A default notice is formal written confirmation that you've not been paying the debt back at the original amount agreed, and as a result this would show on your credit file for 6 years. A default notice will not prevent you from getting further credit in the future, although you may not be able obtain the best deals or products that maybe offered to someone with no adverse credit history.

Having problems with debt?

Every Friday, Kevin Boon of the Consumer Credit Counselling Service will answer your questions and provide expert advice on the best way to deal with debt. Send your questions to j.hall@independent.co.uk with 'Money Matters' in the email subject line.

CCCS is a national charity giving independent advice to anyone worried about debt, delivered free of charge by expert counsellors. Based in Leeds, CCCS is able to help people with debt problems wherever they live in the UK, through its free national telephone service (0800 138 1111), ten regional centres and online debt remedy service ( cccs.co.uk/debtremedy).