Settlement and Paid Up Letters Explained

Table of Contents

Settlement letters explained

Paid up letter explained

Settlement Letters

A settlement letter is usually a discounted offer provided by a credit provider that allows a client to settle an account for less than what the current outstanding balance is. The client can then settle the account sooner rather than later and at the same time save on interest and other account-related charges. A consumer may also in their capacity negotiate a discounted settlement offer with the credit provider should they be in the position to do so.

Most settlement letters are offered with a discount calculated on the outstanding balance at the discretion of the creditor. When a settlement letter is issued it comes with a certain validity period for the consumer to take advantage of. If the consumer misses the validity settlement period a new letter may be requested but it is not guaranteed to be of the same offer. It is furthermore advisable that the consumer either accepts or negotiates a settlement offer at a time when the consumer has the funds at hand.

The turnaround time for settlement letters to be obtained varies between credit providers.

Paid-Up Letters/Accounts

A paid-up letter is a letter from the credit provider stating that all outstanding debt for that particular account has been settled in full.

Usually, when an account has reached a paid-up state, the creditor will forward a copy of the letter to the debt counselor as well as the client. In the event neither party received a copy; the letter may be requested by the debt counselor in writing. 

The turnaround time for paid-up letters to be obtained varies between creditors or debt collection agencies and can take as long as 21 business days in certain instances.

It is important to note that an account may only be marked as paid-up and removed from the payment plan once the actual letter has been obtained. Once the account is removed from the payment plan the installment that was going to the paid-up account is allocated to the remaining accounts on a pro-rata basis.

Paid-up letters are especially crucial when issuing a Clearance Certificate as all accounts listed on the Consent Order need to be paid up so the credit bureaus can update a consumer’s credit profile accordingly. See the article on Clearance Certificates for more details.