How does Debt Settlement in Canada work?
Debt settlement in Canada
is a better and preferred alternative to bankruptcy. Borrowers negotiate with crediting institutions or collection agencies to pay less than the amount they owe. In Canada, debt settlement
, also known as debt help, debt reduction, and debt negotiation, is suitable for borrowers who have unsecured debts in the range of $10.000 Ė $250.000. The types of debt that normally qualify for debt settlement
are: unsecured business debts, leases and auto loans, unsecured lines of credits and personal loans
, retail and department store credit cards
. Some types of debts are not eligible, e.g. secured lines of credit and personal loans, mortgages, student loans
, payday loans
If you think of opting for debt settlement, keep in mind that several factors will have an impact on the outcome. Does the creditor consider you a risky borrower who is likely to file for bankruptcy
? How eager is the credit company to get its money back? And for what period of time your debt has been in collections? For instance, if the creditor believes youíre on the verge of getting bankrupt, it will be more willing to negotiate a debt settlement. If you file bankruptcy, the crediting institution might get nothing.
The first step to debt settlement is contacting your creditor. In fact, some of the creditors will periodically send you various offers for debt settlement. You have to create a settlement fund in order to make a good settlement offer to the creditor. The payoff amount will be between one quarter and one half of the outstanding balance. If the creditor approves the settlement amount, youíll make a payment, and the account will be listed under settled-in-null. As a next step, you have to keep on saving money in your settlement fund so that you have sufficient amount of money to make another settlement offer. In brief, you are saving and negotiating until you pay off your debt in full. Once youíre done, the crediting company will document and note the debt payment on your credit report.
There are several disadvantages to debt settlement in Canada
. First, the debt may be noted on your credit report as settled and potential creditors will notice that it wasnít paid in full. You may be regarded as a risky borrower until the debt is wiped out from your file. Second, you need the settlement amount soon after you agree on settlement. If you canít save enough money in a settlement fund, this option might not be suitable for you. Debt settlement offers vary greatly from one company to another. Some may come with a reasonable proposal that will alleviate your financial burden. Others may offer less than what youíve been hoping for. If you think that negotiation is something you canít manage, you might consider getting in touch with a professional debt negotiator. He will assess your financial situation and work out a deal with the credit company on your behalf. Whether you opt for a debt settlement program or negotiate the terms on your own, you will go through the same steps and procedures.