You can use gifts to make settlement offers to debts you are in arrears with.
These offers are often called called “Full and Final offers” and F&Fs for short. They are explained in detail here.
Using a gift of money to do this is almost always a good idea!
In a F&F that 2k could potentially be used to clear £3,000, £4,000 or more of debt, so it can be an excellent use of the money. The same would apply if you had a bonus from work or inherited some money.
There are a few things to think about, so let’s explore possible situations.
Do you have any priority debts?
Priority debts such as rent or mortgage arrears, council tax arrears, utility debts etc usually have to be handled outside a DMP.
You can’t make a full and final settlement on a priority debt – the creditor knows you are going to have to repay it in full, as a result they are so unlikely to accept an offer. It’s not worth bothering to try for this.
Clearing the priority debt is often a good idea even if you have an arrangement set up to pay it slowly.. Perhaps you need to move to a larger house but the Housing Association won’t let you move because you have rent arrears – that would be a good reason to use the gift to pay the rent arrears. Also you may just sleep better at night if the rent or mortgage arrears are repaid!
What sort of F&F offer should you make?
This depends largely on how long you have been in a DMP for and how large the repayments you are making each month are:
- if your DMP has been running a long time and you are making pretty low or even token payments, your creditors may be happy to accept 25p in the £ or even less. Here the debt will normally have been defaulted and sold on to a debt collector – debt collectors are often easier to negotiate partial settlements with than the original creditor.
- if your DMP has only been running for a few months after you lost your job, you are fit and aged 30, then your creditors are probably not going to settle for less than 80% and they may refuse any offer.
- if you can supply medical evidence to suggest you won’t be able to return to work for a long while, if at all, they are also more likely to accept a low offer. This could be a copy of a hospital appointment letter say, it doesn’t have to be a specially written letter that your GP may charge you to write.
- if all the debts will be repaid in full in another year, then any low offer is likely to be rejected because they will get all their money by waiting a bit.
Should you make the same offer to all your creditors?
DMP firms often seem to say you have to divide the money between all your creditors.
But if your total debts are £15,000 and you have a gift of £2000, that isn’t enough to make offers to all your creditors. So it’s much better to use that gift of £2,000 to clear £5,000 of debt owned by a couple of creditors.
This isn’t treating the other creditors unfairly! After these settlements, the remaining creditors will be getting more money each month. And often you are only being offered the money if it can write off a lot of debt, so it would be silly to turn it down.
I suggest if you only have enough to make offers to a few of your creditors, then you just contact them directly, not trying to go through your DMP firm.
Is the debt very old?
If the debt is a credit card, catalogue or a loan and it is pretty old and it has been sold to a debt collector, read Making a settlement offer on old debts – ask for the CCA first! as that gives you another way to make the most of that gift.
A final thought about taking a gift
Do make sure your dad or your sister can actually afford it. Don’t let someone else get into money problems trying to help you out…