What to Know Before Working with a Debt Settlement Company

Q: I contacted a debt settlement company and they claim they can help me settle my debts for a lot less than I owe. My bills are up to date but if I can get out of debt for less than half of what I owe and my creditors will accept this plan, what’s to lose?

A: We continue to receive calls from people just like you asking the same questions; is this legitimate; will my creditors go along with this even if I am up to date on my bills? We’ve also received calls from consumers who enrolled in a debt settlement program and regret their decision. While these informal debt settlement plans might work for some people in certain circumstances, there are a lot of risks associated with debt settlement programs.

Debt Settlement Warnings

Warning-sign Some provinces like Alberta and Manitoba, have regulations in place that prevent debt settlement companies from charging fees until they have successfully negotiated the settlement of a consumer’s debts with their creditors. Other provinces have issued public warnings advising consumers to be careful when engaging the services of a company to negotiate the settlement of your debts.

Contrary to what you may have heard, when you settle your debts it has a negative impact on your credit rating, which can affect you for years to come. You should also be cautious if a company is only interested in settling your debts without knowing all of your circumstances. Furthermore, creditors will not agree to your settlement if you have the ability to keep up with your payments. Understanding the pros and cons of different debt solutions and basing your decision on facts not fiction will help you determine what’s right for you.

Review a Debt Settlement Company Offer

Finally, check out the company you are looking to work with carefully. Here are some points to consider:

Find out for yourself if the company is licensed in your province and has a good service record.
Determine the qualifications and experience of the company and its representatives. Poor advice may put you at risk of having your creditors take action against you.
The fees charged by the company. Are the majority of fees charged upfront or after they have delivered on their promises?
What happens if they are unsuccessful; will you get your money back?

Do your homework and take your time before making a decision. 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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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.

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