Resolved Debt

Resolved Debt Definition and Meaning

Resolved debt is a problem solved. It means a creditor has agreed to accept less than the full amount that you owe. That can help you get a fresh start with your personal finances. 

Resolved debt is also known as settled debt. Once a debt is settled, creditors and debt collectors will stop pursuing you to collect it.  Resolving unsecured debts can free up money so you can pay other accounts and expenses. Reducing your debt problem in this way also allows you to start rebuilding your credit.

Key Aspects of Resolved Debt

Resolving debts is an important debt relief strategy for people who can't afford to repay the full amount that they owe. Here are four key things you should know about resolved debt:

• Negotiated process. Debts are resolved for less than the full amount owed as a result of negotiations with creditors. You can handle negotiations yourself or hire a debt relief company to do it for you.

• Partial payment. In order to negotiate, you must have something to offer. Be prepared to pay part of what you owe. This may convince creditors that accepting a partial payment now is better than the risk and expense of a lengthy collection process. They are more likely to do this if they understand that you have suffered an unexpected financial setback.

• Written agreement. Once you reach an agreement with a creditor, it’s very important to get that debt settlement agreement in writing. That way they can’t come back at you in the future claiming you still owe them money.

• Impact on credit. People don’t usually enter into the resolution process until they’ve already had trouble paying their bills. So, while debts settled for less than the full amount owed will appear on your credit record, that record may already be damaged. On the plus side, resolved debts reduce the amount you owe, which is a positive. And clearing debt you can't afford may make it easier to start building a successful payment history.

Types of Resolved Debt

Debts you can resolve with a partial payment are likely to be unsecured debts, such as credit card debt and unsecured personal loans.

Secured debts are those that require collateral. Mortgages and auto loans are examples of secured debts. In those cases, the creditors are entitled to claim the property or vehicle if you don’t pay the loan. So secured creditors are unlikely to accept a partial settlement.

Even so, resolving unsecured debts can also help with secured debt. Freeing up some of the money you would have needed for the unsecured debt may allow you to afford your payments on the secured debt. 

Example: How Resolved Debt Works

Suppose you have the following debts:

• A $10,000 credit card balance

• $2,000 remaining principal owed on an unsecured personal loan

• $12,000 remaining principal owed on a car loan

Your credit report will show this as $24,000 of debt owed. You’ll be expected to make monthly payments on all those debts, and those payments will include interest charges in addition  to the $24,000 you owe.

Now suppose you, or a debt relief specialist working on your behalf, negotiates to settle the two unsecured debts. As a result, the credit card company agrees to accept $4,000 to clear the $10,000 you owe. The bank that made the personal loan agrees to accept $1,000 to settle the $2,000 you owe.

As a result, you’ve paid out $5,000, but you now owe just $12,000 instead of $24,000. Also, the money you were putting toward monthly credit card and personal loan payments can now go toward your auto loan and other expenses.

This is how resolved debt can be a game changer. It can make remaining debts more affordable, and allow you to start building a better credit record.