UK Defaulted Debt: Should You Pay Off or Hold Off? (2025 Guide)

If you want to settle your defaulted debt, consider the phrase "cui bono," which, translated from Latin, means "to whom is it a benefit?" The answer should always be... Me.

The Reality About Defaults on Your Credit File

If you believe that settling your defaulted debt will remove the default from your credit file, we can inform you that this is not the case. The default will remain on your credit file for six years from the date of the default. This is confirmed by all UK credit reference agencies, including Experian, Equifax, and TransUnion, as of 2025.

That said, settling a default might improve your lender's view of you, but there's no guarantee it will have any impact.

With that in mind, if a relative offers the amount you need to clear the debt, for example, meaning you will successfully secure a mortgage for a property, paying it off could make sense; you will benefit.

If your reason is "I just want it gone," it might help you emotionally or mentally in the short term, but how will you handle your emotional and mental health in the future? How will you manage priority debts like council tax, utility bills, and other essential payments? How does it benefit you financially?

When Paying Off a Default Makes Sense

Recent UK data shows that settled defaults may be viewed more favourably by some mortgage lenders, but this varies greatly between providers. Some lenders have no preference between settled and unsettled defaults when making lending decisions.

If you're feeling stressed and worried about your unsecured debt that has been defaulted, it's important to recognise that your feelings are generated and managed by your mind. They are not necessarily shared by others, particularly not by your creditor.

If you don't believe this, try calling your creditor and just state your name without giving any other details. The representative won't recognise you, so they'll ask for your account number. After you provide it, you'll need to wait while they verify your identity and the purpose of your call. That same representative won't leave work and spend the evening talking about your credit card debt.

The CEO of Barclays PLC will not walk into the office on Monday and ask his PA whether you have settled your credit card bill.

So, this means the only person emotionally and mentally impacted by the debt is… You.

Putting Debt Into Perspective

Consider this: millions of people have mortgages worth hundreds of thousands, yet they don't panic about 'owing money'; they just make their monthly payments and go on with their lives.

If you've followed our "Token Payment Method" and read our article "Why do debt collectors settle for less?" you might be eagerly awaiting the ideal offer to settle your debt at a reduced amount. You wait patiently, but eventually your emotions take over, prompting you to send an offer to the creditor or debt collector. In response, you receive a counteroffer with a significantly higher settlement sum.

“Maybe I should try to raise the money to settle this debt?" you think to yourself.

Stop! Why would that be at the forefront of your mind?

Now, this is where mindset comes into play.

The Phone Bill Comparison That Changes Everything

Do you have a phone contract? If so, think about how much you pay each month. It's usually around £35, while your monthly token payments can be as low as £1 (£12 annually).

Now ask yourself how you cope mentally and emotionally with £35 per month when £1 per month affects you so much that you're willing to try and raise money you don't have to clear the debt.

Take a moment to let that sink in.

Finance is a subject that requires you to manage your emotions and adopt a business-like (logical) approach to decision-making. Guess what? This is what this article and this site are designed to help you with.

We got you!

Token Payments Are Legally Recognised

The FCA Handbook (Section 7.3.5) explicitly supports token payments for customers facing financial difficulties. UK creditors are expected to accept token payments "for a reasonable period of time" when you can demonstrate that meeting existing debt obligations would prevent you from covering priority debts or essential living costs.

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.