Resolved Debt

Resolved debt summary:

• Resolved debt has been settled for less than you owe.

• Creditors might be willing to resolve your debt if you’re experiencing ‌financial hardship and can’t afford to repay all of your debt.

• You can negotiate debt directly with your creditors or work with a program that negotiates on your behalf.

Resolved debt definition and meaning

Resolving debt means negotiating with your creditor to accept less than the full amount you owe, and forgive the rest. You can negotiate directly with your creditors or work with a debt relief program that helps deal with creditors to reduce your total debt. 

Debt resolution could help you significantly reduce your debt, and, more importantly, regain control of your finances. 

Key concept: When a creditor agrees to forgive part of your debt and accept less than the full amount you owe, you’re resolving the debt.  

More about resolved debt

Debt happens. Most of us take on debt at some point in our lives. But when debt becomes overwhelming, resolving debt could be a strategy to consider. 

Not all debts have to be repaid in full. Creditors understand that sometimes people can’t fully repay their debts, even if they intended to. Creditors realize that being flexible may be their best chance of recovering any of the money you owe. After all, it costs time and money to sue you for the debt, and there’s no guarantee that they’ll get more from you if they do.

Resolved debt: a comprehensive breakdown

Resolved debt is a negotiated settlement between you and your creditor. The creditor agrees to accept a reduced amount, and forgive the rest. You pay the agreed amount and the creditor forgives the remaining balance. The debt is then fully closed. You don’t owe any more, and the creditor won’t try to collect.

Creditors have no obligation to resolve debt, yet most would rather collect a portion of a debt than nothing at all. Debt resolution is a possible solution if your finances have changed and your debt has become unaffordable. Some of the most common hardships that could qualify for debt resolution are:

• Medical emergency

• Loss of employment

• Death of the household breadwinner

• Divorce

• Natural disaster

• Victim of crime

Not every debt can be resolved, but most unsecured debts are eligible for debt resolution. For example:

• Credit cards

• Medical bills

• Personal loans and personal lines of credit

• Payday loans

• Private student loans

Secured debts, like mortgages and car loans, aren't candidates. Tax debt can’t be resolved but you may be able to negotiate with the IRS through their Offer in Compromise program. 

Resolved debt and your credit

Some people resolve debt by sending a one-time lump-sum payment to the creditor. Other times, the creditor agrees to accept a series of smaller payments. In either case, you need money. 

It can be hard to come up with money for your creditors when you’re already experiencing financial hardship and struggling to keep up. To save money for making offers, some people stop paying their creditors. This could make it easier to set aside funds. It also sends a distress signal to your creditors.

To be clear, any time you stop making at least your minimum payments, your credit standing will suffer. If you had already fallen behind, your credit score might already be damaged. If you hadn’t fallen behind yet, your score could plunge.

Once you resolve a debt, it'll be reported as “settled” on your credit report. This is better than a collection account, but not as favorable as “paid as agreed.”

Dealing with your debt could help you get your budget under control so that you don’t get financially overwhelmed again in the future. If you’re drowning, it’s a good idea to focus on your finances first and rebuild your credit later. This is one of those times when your credit score probably isn’t the most important thing to focus on. Even after resolving debts, it’s possible to rebuild your credit over time.