Even though there are types of debt that you can actually benefit from in Montreal, they can also damage your financial health when they become too numerous and expensive to deal with properly. If you’re currently in that kind of situation, a drastic debt management technique may be necessary in order to avoid the debt collection process or even worse, legal consequences.
In that case, a debt settlement might be an appropriate path for you. Keep reading if the idea sounds appealing and you’re interested in learning more about this technique.
How to Initiate a Debt Settlement In Montreal
While the procedure won’t get rid of everything you owe, a debt settlement involves contacting your creditors to strike a deal that frees you from a significant portion of your outstanding consumer debt through one lump sum. This can be done in two ways:
Hiring a Debt Settlement Company In Montreal
If the idea of a debt settlement is too confusing or you’d simply prefer the help of a professional to see the process through to completion, enlisting a debt settlement company might be the way to go. Essentially, one of these companies can reach out to your creditors on your behalf and attempt to broker a deal that allows you to pay a large percentage of your debt total, rather than the full amount.
Looking for more ways to conquer your high-interest debt? Check these out.
Although you can also try this on your own, a good settlement company will have experienced negotiators who may be able to secure an even lower balance than you would alone. However, before you hire one of these companies, be sure to take a few precautionary measures, such as:
- Don’t be impatient. Take time to compare different companies and choose the one that suits your financial needs.
- Do proper research. Not all debt settlement companies are legitimate. There are some that may try to charge you inappropriately high fees. Even worse, they might be a fake organization that scams borrowers who need assistance.
- Consider the costs. Even if they are a legitimate company, they are still going to charge you a fee for their services.
- Consider the potential consequences. Similar to the credit products that caused your debt in the first place, avoiding your lump sum payment or settlement company’s fee will result in further financial problems.
- Don’t expect a miracle. Although a settlement company can have your debt reduced, they cannot prevent debt collectors from contacting you or prevent creditors from suing you for payment.
Be sure to ask your debt settlement company these questions.
Do-It-Yourself
If you don’t want to deal with the risks of hiring a debt settlement company, you can also try to negotiate a debt settlement in Montreal on your own (for information on this, click here). While this may not be as easy as working with a professional, you can potentially initiate a similar deal if you can prove that you have no way of paying back your full debt. If you’re convincing enough, they may give you a fair deal, rather than watching you declare bankruptcy, which would result in a total loss for them.
Just the same, there are a few important things to consider before you try a DIY debt settlement, such as:
- Be prepared. With no professional help, it’s up to you to provide all the proof. Set up a meeting with your creditor so you can show them your bank statements, income, and other financial documents that prove how much you can afford.
- Don’t get ahead of yourself. Even if you can successfully negotiate a debt settlement by yourself, the same risks apply. No matter how much you settle for, your creditors are not legally restricted from filing a lawsuit against you or handing your case over to a collection agency.
- Beware of defaulting. Once again, you must meet your payment date and amount to settle the debt properly. If you start making promises you can’t keep and default, things will escalate, and you won’t have professional backup.
- Talk to a financial advisor. Although a settlement company may not be what you want, it’s always beneficial to talk to a financial advisor before you attempt a DIY debt settlement. They can provide you with information about the process, teach you negotiation tactics, and let you know if the creditor is actually giving you a good deal.
Debts That Can Be Covered By a Debt Settlement
When it comes to debt settlement in Montreal, there’s another factor to take into account; the type of debt you’re trying to settle. What many borrowers might not know is that only certain kinds of consumer debt are eligible for the process. Generally, any debt that has been collateralized by an asset, such as your home or car, as well as some legal or government appointed debts, cannot be covered. We’ll give you a few examples:
Eligible Debts
- Unsecured traditional loans
- Utility, internet, cable, and cell phone bills
- Credit card payments
- Personal lines of credit
- Non-Federal student loans
- Unpaid income taxes
Ineligible Debts
- Mortgage debt
- Car loan debt
- Home equity loans or HELOCs (home equity lines of credit)
- Child support or alimony payments
- Student loans from the Federal Government
- Secured traditional loans
Take a look at this infographic to learn how to create a debt repayment plan. Pros and Cons of the Debt Settlement Process In Montreal
No debt solution is without some advantages and disadvantages that make them both right and wrong for various financial situations. A debt settlement might be appropriate for someone else, but not for you, which why it’s essential to talk to an advisor before you attempt the process. Otherwise, look at some of these pros and cons, so you’ll have an easier time making your decision.
Pros
- Your debt-to-income ratio can be reduced significantly. This will also cause your credit utilization ratio to drop. The overall effect will be positive for your credit score. The less outstanding debt you carry, the more your score will rise.
- If they consider the settlement fair, your creditors may stop chasing you for full payment. Doing this should reduce the late penalties and interest piling up, which can prevent further damage to your credit report.
- Since your debt level is lower, you can get back on track sooner, and correcting your financial issues will be much easier.
Cons
- A record of your debt settlement will show up on your credit report for several years following its conclusion. This can make future creditors skeptical of your creditworthiness, at least until you can reverse the damage.
- Scamming, fraud and identity theft are all possible if you don’t research a debt settlement company properly.
- If you owe money to a number of sources, debt collection scammers may use that notion to get you to pay for a “debt” that doesn’t actually exist.
- Once again, your money problems will only continue if you fail to pay your settlement (and all potential fees involved) in full. The situation will get even worse if you intentionally avoid the creditor’s attempts to contact you.
Click here for some more debt management tips.
Alternate Debt Solutions
Maybe your outstanding debts are serious enough, but you don’t want to try a debt settlement in Montreal or aren’t eligible for the process. In that case, there are a few alternative solutions that you can seek out, including but not restricted to:
- Credit counselling
- A debt consolidation loan or program
- Borrowing from friends and/or family
- Borrowing from your home equity
- Selling your assets and using the proceeds
- Filing for a consumer proposal or personal bankruptcy
This infographic can help determine which debt relief option is best for you. When to Consider a Debt Settlement In Montreal
If you’re still not sure whether a debt settlement in Montreal is appropriate for your situation, there are a few clear signs that might indicate otherwise. For instance, a debt settlement may be best when:
- Your outstanding debts cannot be managed by conventional methods (credit cards, savings, etc.)
- You have enough money to afford one large payment but can prove that you don’t have enough to cover the full amount.
- You’re able to get along without any credit products for a few months, possibly years after the settlement concludes.
- You’re comfortable with a lower credit score and credit rating, which may occur once the settlement goes through.
Click here to see how a debt settlement can affect your credit.
Loans Canada and Your Debt Settlement
If you’d like to try a debt settlement in Montreal or simply want more information about the process, don’t hesitate to contact us. We’re here and committed to helping you with whatever debt solutions you need!
