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Debt can be a tough adversary to take on. This is particularly true in Calgary, where your day-to-day expenses can run high. In fact, many consumers in Calgary carry a significant amount of debt, which can certainly be overwhelming. When that debt becomes unmanageable, seeking professional help, in the form of debt settlement, could be the solution you’ve been looking for.
Take a look at these debt management tips for credit users.
The Debt Settlement Process: What’s Involved?
Debt settlement is a type of agreement that you or a debt settlement company may be able to strike with the creditors you owe money to. The ultimate goal would be to reach a settlement that allows you to pay back an affordable percentage of what you owe, rather than the full amount.
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If the negotiation goes well and the settlement is accepted, you will pay that portion back in one lump sum, eventually freeing you from your creditors’ radar. As we mentioned, there are two ways of seeing this settlement through to completion.
On Your Own
If you would prefer not to go through the motions of hiring professional help in Calgary, you can always try to negotiate a debt settlement on your own. This would involve you reaching out to your creditors and explaining your debt situation to them. Before you try this, however, consider the following factors:
- For a settlement to be reached, you must be able to prove that you have no possibility of paying them back in full within a reasonable time frame.
- Even though they’re losing money, some creditors would prefer that you pay back at least some of what you owe, rather than you declaring bankruptcy, wherein they would potentially receive nothing in return.
- To prove your inability to pay, you’ll need to provide them with various financial documents, such as banking and income statements.
- If you can convince them that you have no other option, they may accept your offer. If not, you may have to turn to the next option.
Is a DIY debt settlement is the way to go? If so, read this.
Hiring Professional Help in Calgary
The other route you can take is to contact a debt settlement company for some outside help, which might work better if your DIY debt settlement falls through or if you would simply like a professional to oversee the process and guide your hand. They may have an easier time getting through to your creditors than you and could even negotiate to have your outstanding bill reduced by a more substantial amount. That said, before you choose a debt settlement company, there are a few things to keep in mind, such as:
- The help of a debt settlement company will not be free. They will charge you a fee for their services, some companies more than others.
- There is no way to guarantee that a debt settlement will go through, nor that your creditors will cease pursuing you for full payment, at least until a real settlement is reached.
- Watch out! Any “company” that offers a 100% guarantee may be fake and trying to scam you.
- Since you may be desperate to solve your debt problems, some more predatory companies in Calgary and Canada, in general, may use that as an excuse to charge you a very high fee, even if they are legitimate organizations.
- Always research a debt settlement company properly and ask a real financial expert for advice before you sign any contracts or pay any fees.
Do you know what the true cost of borrowing is? Find out here.
Secured vs. Unsecured Debt
Another important element to consider before you choose a settlement is what kind of debt can actually qualify for such a procedure. Unfortunately, not all debt types are eligible, which is another reason to consult a financial advisor in advance. Typically speaking, only “unsecured” debt will qualify, meaning any debt that isn’t tied to an asset. Those that do involve collateral, known as “secured” debts, may not be eligible at all. Below, we’ve provided some examples:
Secured Debt (not eligible):
- Mortgage payments
- Car loan payments
- Collateralized loans
- Government loans
Unsecured Debt (eligible):
- Credit card bills
- Non-Federal student loans
- Income taxes
- Utility bills
Wondering if you qualify for debt settlement? Find out here.
Benefits and Drawbacks of a Debt Settlement
Like any sort of financial product or procedure, a debt settlement is not right for every Calgary borrower. Here are a few of the more notable benefits and drawbacks of a debt settlement, several of them involving the way your credit will be affected by the process. Read through them carefully for a better idea of whether it’s the right path for you.
- You’ll be reducing the amount of debt and accumulated interest on your plate
- It’s better for your credit score to have a lower debt-to-income ratio
- Fewer late/defaulted payments will show up in your credit report
- The less debt you have, the easier it will be to start rebuilding your credit health
- The faster you reduce your debts, the sooner you can bounce back financially
- With any luck, the whole experience will help you change your financial habits
Click here to learn about some programs that can help you rebuild your credit.
- A debt settlement will show up on your credit report for several years following completion
- Lenders can view your report when you apply for new credit, see a record of your settlement and may decide to deny your application
- Even though your overall debt will be reduced, you may still have a significantly large lump sum payment to make
- Failure to make said payment on time and in full will only result in further penalties and debt problems
- If you don’t manage to change your financial habits, similar issues will only arise later on. Again, future lenders in Calgary will see that your habits haven’t improved, and may decide that you’re not a creditworthy client
Here’s why your credit report might be scaring lenders away.
Other Options in Calgary
If you’ve determined that a debt settlement isn’t the best course of action for your financial situation, don’t worry, there are a few alternatives that you can choose from in Calgary. However, like a debt settlement, each option comes with its own advantages and disadvantages, so again, consult an expert before you make your final decision. Consider the alternatives below:
- Debt consolidation loan or program
- Credit counselling
- Home equity loan or HELOC (home equity line of credit)
- Consumer proposal
For more information about some of these debt management products, look here.
Knowing When a Debt Settlement is Right For You
Given all the considerations above, it can be difficult to determine if a debt settlement is truly the right choice for your lifestyle. Remember, debt settlements aren’t for everyone and you may have other safer or more convenient options. Nevertheless, a debt settlement in Calgary may be the best choice when:
- You have at least $10,000 worth of unsecured debt
- You can’t keep up with your payments and have no possible means of paying your debt in full
- You can at least afford the large lump sum payment upon approval
- You’re comfortable with the level of damage that may be done to your credit
- You’re able to get by with just your income and savings for a few months (maybe years) following the settlement’s completion
- You’re able to survive without credit during that time, since many lenders in Calgary may not approve you until you’ve repaired your finances
Looking for a bad credit loan in Calgary? Try reading this.
Your Debt Settlement and Loans Canada
Considering a debt settlement or other debt alternative in Calgary? In that case, all you have to do is talk to Loans Canada. We’re confident that we can help you with whatever debt problems you have and whatever debt solutions you need. Contact us today for more information!