Debt Settlement

Learn who is eligible and when it’s the best option for dealing with your debt.

Debt Settlement Companies: The Good, The Bad and The Ugly

Q: I heard an ad for a company. They said that they can settle my debt for much less than what I owe and I can get out of debt faster. When I called them, they also said that after I’m done, I can easily rebuild my credit rating. I’m considering going ahead with this but it just sounds too good to be true; is it?

A: When you’re struggling to pay your bills and you hear an ad like this, it may seem like the light at the end of the tunnel just got that much brighter. However, in the case of debt settlement, there are a number of factors and costs to consider before choosing this course of action. It’s important to understand that your creditors will not accept less than what you owe without carefully examining your overall financial situation. They want to make sure that you are offering as much as you can, regardless of what a debt settlement company may claim.

Other factors to consider are:

Creditors can take you to court if you go on a debt settlement company's program and don't pay them.

  • If your offer is declined, will you be at risk of having your creditors initiate legal action against you by garnishing your wages or seizing your assets
  • What may happen if only some of your creditors accept the settlement offer and others don’t
  • How long your credit rating will be negatively impacted because debt settlement only repays a portion of what you owe. The rest is left unpaid.
  • Fees charged by the debt settlement company – many are charged up front
  • If the company is licensed in your province and if they have a good service record

Many of these companies will ask you to make monthly payments to them and once they have enough money from you, they will try to settle your debts. There’s no guarantee that they’ll be successful or if they’ll return all of your money if they aren’t. They also don’t tell you that during this time, you will continue to receive collection calls because you will be falling further behind.

Before deciding what to do, I strongly encourage you to do your homework and examine all of your options to resolve your financial situation. If you are unsure how to proceed get help from a reputable and accredited organization. What you may discover is that the long term impact of your choice today is much too steep a price to pay.

Scott Hannah is the President & CEO of the Credit Counselling Society. His weekly column appears on Mondays in the The Province Newspaper and is often carried by other major newspapers across Canada.

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See if debt settlement makes sense for you.

Speak with a non-profit credit counsellor.

Debt settlements are just one of 7 debt relief options available in Canada (5 are available in all provinces). Before deciding to pursue a specific option, it would be wise to speak with a credit counsellor, review your situation, and determine which option is going to help you achieve your financial goals. Speaking with our counsellors is always free and confidential.

Related Articles

Debt Settlements

Settling your debts for less than you owe is not a common way to deal with debt. Here’s why.

Debt Settlement Dangers

Working with a for-profit debt settlement company can cost you. Here’s what to watch out for.

Risks & Consequences

Be aware of what’s at stake when you settle your debts with a for-profit company.

 

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