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Two Kinds of Settlement

Posted By:  |  June 20, 2014  |  0 Comment(s)


Author: Anthony Manganiello

Author of The Debt-FREE Millionaire and creator of

If you’ve hired a debt settlement company to negotiate lower balances with your creditors, there are typically two different types of settlements that you may find yourself funding. They are:

  1. The Lump Sum Settlement
  2. The Multi-Pay Settlement

A lump sum settlement is pretty straightforward. This is where you and your creditor agree to a single payment towards a balance on your account. For example, you owe Creditor ABC $5,000, but they’re willing to accept $2,000 as a settlement in full on that account. The result is that you’ve satisfied your financial obligation on that account, saved $3,000, and the creditor (or collector) has agreed to consider the account “settled,” or “paid as agreed.” Furthermore, providing you have the proper settlement letter and other important documentation, that account will never come back to haunt you.

However, what if you don’t have $2,000? What if you only have $900 right now, but could come up with $400 a month for the next four months for a total of $2,500. Instead of saving $3,000 with a lump-sup settlement, you may be able to save $2,500 over a period of time.

If you do, and the creditor or collector currently working that account agrees to accept a “payment plan,” then you could still settle the account. You would remit payment to them for $900 now, and then remit four subsequent $400 payments on specified dates (usually in 30-day increments) for a total of $2,500.

These types of settlement can be rather popular for obvious reasons (you just may not have enough money available to make a lump sum payment). Typically, if this is the case, then the percentage of settlement would most likely be a bit higher than what the creditor or collector would make available for a lump-sum/one-time payment (as indicated in our previous example).

The terms of a multi-pay settlement can be as unique as a fingerprint. What’s most important about them is one simple fact.

You must adhere completely to the terms outlined in the settlement letter or letter of agreement otherwise you could jeopardize the settlement.

Let’s take a look at our above example again. You owe $5,000 on an account and your creditor has agree to take a payment of $900 now, and $400 a month for the four subsequent months on predetermined, mutually agreed upon, dates.

If you make the up front payment ($900), and the next two payments ($800 total), but fail to make the third payment, what could happen?

The $1,700 you’ve paid towards that settlement (by virtue of the first $900 payment and two subsequent $400 payments) could be deducted from the original balance owed, ($5,000) and you could wind up still owing $3,300. ($5,000 – $1,700 = $3,300).

This is why it’s imperative that – if you do agree to a multi-pay settlement – you’re supremely confident in your ability to remit each and every payment on time. If you miss just one payment, even just the last one, all previous payments could merely be applied to the original balance owed, and you may wind up still owing the difference.

The moral of the story is – when you agree to any kind of settlement (lump sum or multi-pay) you need to be certain in your ability to satisfy the terms outlined in the settlement letter or letter of agreement. If you’re able to achieve a lump-sum settlement, that payment had better be there on or prior to the date outlined in the agreement.

If you agree to a multi-pay settlement, then you need to be certain that each and every payment will be on time.

Otherwise, you could be back to square one, and that exactly where you don’t want to be.


  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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