Debt settlement programs have existed in Canada and Nova Scotia for a very long time. Their goal is to help save money on interest, fees, and principal balance. Of course, every situation is different, but there the basic process remains the same for everyone who signs up for a debt settlement program.
This article is a series about Debt Settlement. We recommend you start from the beginning. The other articles are linked below:
Part 2 – How Do Debt Settlement Programs Work? – You’re reading this now
Debt can be a symptom of any number of problems and life circumstances. However, it is important to understand that YOU ARE NOT YOUR DEBT. At Halifax Debt Freedom, we'd love to discuss how we can help you become debt free.
Debt can be a symptom of any number of problems and life circumstances. However, it is important to understand that YOU ARE NOT YOUR DEBT.
At Halifax Debt Freedom, we'd love to discuss how we can help you become debt free.
Debt Consultation & Settlement
Your first step is to speak to a debt professional to know if a debt settlement program is right for you.
Oftentimes, due to the pros of a debt settlement program, consumers think it is the best option for them. However, after looking at the specific situation, other options may be better suited in many cases. These options include debt consolidation, credit counselling, consumer proposal, or even bankruptcy.
Most debt settlement companies only work with larger amounts of debts, generally more than $10,000. When debts are lower than this, other debt options may be more suitable. Such as an extensive budgeting plan, credit counselling, or even a consolidation loan.
The Debt Settlement Negotiation
If, after speaking with a debt professional, debt settlement is the right choice for you then you will typically engage the services of a debt settlement company. The goal of the debt settlement company will be to reduce the amount of principal amounting owing to creditors and not just simply reduce interest rates. The firm will typically outline an estimation of debt reduction. Once they have given you this number you will typically be required to save this amount of money (and potentially slightly more) for the firm to then work with, and negotiate on your behalf.
The amount that the debt settlement company can reduce your debt depends on a variety of factors. While most consumers have a very hard time negotiating settlements themselves, a professional, reputable debt settlement company can reduce debt anywhere from 20 to 80 percent depending on the circumstances.
Except in the rarest of circumstances, only unsecured debts such as personal loans, lines of credit, and credit cards can be reduced in debt settlement programs. Secured debt like car loans and mortgages typically cannot be reduced.
What Debt Can A Debt Settlement Company Help With?
The types of debt that debt settlement companies can help you with include, but are not limited to:
- Credit Card Debt,
- Unsecured, Personal Loans,
- Pay Day Loans,
- Unsecured, Lines of Credit,
- Bills (Such a cell phone bills, and
- Debts in collections, as long as they are listed above.
The Payment Process
Because you are typically required to save up a lump-sum of money before debt settlement companies will begin working with you, the process can be quite long. As the money is saved it will be placed in a Trust account, typically administered by a law firm or licensed debt settlement firm, who will only release funds according to strict instructions you agree to. The debt settlement companies will then use this money to settle your debts.
They will usually offer your creditors a lump sum payment. This amount will be less than you owe and allow you to get out of debt with that particular creditor. It should be noted that though this process creditors typically won’t accept monthly payments and reduce the principal.
A debt settlement company may recommend you pay them monthly payments to build up the amount of money they require to settle your debts. Be particularly mindful if this request is made. There are many debt settlement scams out there. If you do not have easy access, or the ability to save up this money quickly, there are usually other debt relief options available for your financial situation.
In most cases, creditors are worked on as a group but due to varying factors may not be settled at the same time or at all.
After the Last Creditor Is Paid Off
Once your final creditor is paid off you will typically receive a final report that outlines original debt loads, settled amount, the amount saved, fees charged, etc. You should also receive confirmation letters of settlement. These will be your back-up in the instances a creditor or collection agency attempts to pursue you for the settled debts in the future.
If all of the funds in the Trust account have not been used they will also be returned to you.
How Does Debt Settlement Affect My Credit Score?
The overwhelming majority of people who are struggling with large debt loads believe the only way out is Bankruptcy. While this is potentially the right option in some situations the majority of people are able to avoid bankruptcy entirely if they desire.
There is no restructuring option, including debt settlement, that is free from a credit impact. Depending on which option you choose, the actual time frame to complete the program will determine the overall impact on your credit.
Debt Settlement can have one of the lowest impacts on credit, compared to most debt relief options, when done properly. The reason for this is because typically speaking your accounts will be marked as either Paid or Settled and then closed. Assuming you have entirely cleaned up your credit report this will allow you to begin rebuilding credit immediately, with no issues.
It is important to note that if done incorrectly these programs can have extremely negative impacts on your credit score and credit report. This is why it is important to consult a professional before any settlement offer is made.
Are All Debt Settlement Companies Equal?
Unfortunately not. It is important that you deal with a company that exclusively deals with this area of expertise. There are many companies who attempt to help people with this process with lacklustre results.
What is a fair debt settlement offer?
A fair offer usually ranges between 25-80% of the overall debt loan. This typically includes any fee debt settlement companies may charge to settle your debts. Any sort of debt consolidation, debt management, or settlement process is highly specific to your unique situation. Whenever you are looking to pay less than the full amount you owe there is more to consider than just the overall amount owing.
Are Debt Relief & Settlement Programs legitimate?
Yes – debt relief & settlement programs are indeed legitimate. It is important that you choose a company that can actually help you settle your debts and pay less than you owe. Many debt settlement companies make bold statements and so it is important to properly analyze them, ask to speak with past clients, check out reviews, and ensure they are reputable.
You do not want your financial situation, your credit score or credit report to be negatively impacted because of a dishonest company.
Find Out More
If you are struggling with debt and are considering a debt settlement program you should definitely consult one of our Debt Relief Specialists to determine which debt relief option is best suited for your situation.
Debt settlement is only one option to deal with debt. We are one of Canada’s largest independent debt restructuring firms and have helped restructure billions in consumer debt since 2002.
This article was written by David Moffatt. A Senior Debt Relief Specialist with 4 Pillars Halifax. 4 Pillars has assisted in creating plans that have helped save Canadians over $1 Billion dollars of consumer and tax debt since 2002. We believe that no consumer should have to struggle with the stress of overwhelming debt. Our debt restructuring strategies can help you cut your debt by up to 80% with less than 3% of our clients ever getting into deep financial difficulties again.
We are proud members of the Canadian Debtors Association. We work for you, not your creditors.
If you are struggling with debt please reach out. It hurts to continue to suffer financially. 4 Pillars Halifax services Halifax, Dartmouth, Bedford, Sackville and the entirety of HRM.