Red Deer, like much of Alberta, has some of the highest earners in the country. Then again, if you’re a resident, chances are you’re making a decent wage but are also subject to the relatively high cost of living. While you may have no trouble handling the various debts that come your way, there are often expensive and unexpected situations that occur in life.
If you’re struggling with debt in Red Deer, the best thing to do is deal with the problem before it drags out and makes things worse for your finances. One way of doing that is by offering a debt settlement to your creditors.
What to Expect from a Debt Settlement in Red Deer
There are several different options that you can choose from when it comes to debt relief, some that are best suited for simple cases and others for more drastic cases. Not all of them may be right for your specific situation, so it’s important to do prior research and even speak to a financial advisor before you make your choice.
One of the more common solutions is known as a debt settlement, which is when you offer to pay off a large portion of your outstanding consumer debt through a one-time payment, rather than the full amount you owe. If you can provide proof of your inability to pay completely, many creditors will be receptive because they would rather get some of their money back and avoid the complications of a legal procedure, such as a lawsuit, consumer proposal or bankruptcy.
However, it’s also essential to understand that this would not be a legally binding procedure, so your creditors can choose not to accept your settlement for whatever reason. Even if they do accept, they are also not obligated to cease any debt collection penalties they’ve laid against you during the process, so keep these risks in mind before you decide.
Want to learn how to create your own debt repayment plan? Click here.
Eligible and Ineligible Debts in Red Deer
Another precaution to take is to make sure that your debts are actually eligible for the process. In the case of a debt settlement, eligible debts are typically restricted to those that are not secured by collateral or those that relate to non-credit, non-legal, and non-government entities.
Unfortunately, if your debt is secured, it means that a creditor still holds temporary ownership over one of your assets, such as your house or car, so it cannot be included in a debt settlement. The same goes more any debts that were assigned to you by the court or by the federal government. Take a look at the examples below to see if your debt would be eligible.
Eligible Debts in Red Deer
- Unsecured loans and lines of credit
- Bills from non-credit companies (internet, utilities, etc.)
- Credit cards
- Payday loans
- Non-federal student loans
Ineligible Debts in Red Deer
- Mortgages
- Home equity loans and lines of credit
- Legal fines (tickets, lawsuits, etc.)
- Federal student loans
- Vehicle loans
Click here if you’re looking for debt relief from payday loans.
Debt Settlement Options in Red Deer
Now that you understand what to expect from a debt settlement, let’s discuss the two methods with which you can perform one. Again, one tactic or the other may not be what’s best for you, so be sure to weigh your options appropriately.
Solo Debt Settlement
As some creditors are open to a bit of negotiation, you can always try to settle your debts on your own, which is a good option if you don’t want to hire or cannot afford professional aid.
Then again, a solo debt settlement would, of course, involve reaching out to your creditors alone and showing them proof that you cannot pay in full. While many creditors will be receptive, others may not if you aren’t the greatest negotiator or if you offer a settlement that isn’t considered fair.
For more information about DIY debt settlement, click here.
Professional Debt Settlement
If you’re too worried about trying to settle your debts alone, you can also hire a debt settlement company in Red Deer to smooth out the situation for you. Although you’ll need to pay some kind of service charge at the end of the process, a professional company may have more skilled negotiators on-hand. They may even be able to get your outstanding debts reduced by a larger amount than you would have received alone.
Nonetheless, this can potentially have more of a risk than a solo settlement for a number of reasons. Firstly, if you cannot afford your lump sum payment, plus the company’s fee, you may wind up with even worse debt problems than you had before. Secondly, even a professional company still cannot prevent a creditor from suing you.
Thirdly (and this is the greatest risk of all), not all “debt settlement companies” are legitimate or have your best interests in mind. Predatory companies may use your desperation to charge you ridiculous fees for their services. What’s worse, there are many fake companies in Red Deer and Canada, in general, that are actually trying to scam you and steal your identity so they can commit fraud. Always research a debt settlement company properly before you sign any contracts or hand over any information.
Be sure to ask a debt settlement company these questions before you apply.
The Effect on Your Credit
Although a debt settlement can be helpful in more ways than one, it’s also important to know that it will have a negative impact on your credit report.
Like with many relief products and programs, creditors will generally report your debt settlement activity to Canada’s main credit bureaus; Equifax and TransUnion. For the next few years, a record of the event will appear in your credit history. In addition, any accounts associated with the process will receive a credit rating of R7 until the ordeal is over.
If you eventually pay your settlement as agreed, your creditors should report it as such and your credit will gradually rebuild itself. If your debt remains unpaid, the opposite will occur. That said, the biggest problem with this kind of damage is that future creditors can see it if you apply for new credit while the settlement is still in effect. Until the record is expunged for your report, they may consider you too risky to approve, at least for reasonably priced credit products.
Take a look at this infographic for more information about credit scores in Canada.
When a Debt Settlement is Right for You
Now that you know more about the debt settlement process, it’s time to decide whether it’s right for you. Essentially, a debt settlement may be your best option when you’re behind on all your payments and are now facing collection penalties as a result. It’s also only a good idea if you can comfortably deal with any services fees, credit damage, and other costs that may be involved with the process.
So that you’ll have an easier time weighing your options and making your final decision, we’ve listed some of the potential benefits and drawbacks associated with a debt settlement. Be sure to consider them thoroughly.
Benefits
- If accepted, it can save you from having to pay your full outstanding balance, possibly even from incurring more interest and penalties.
- It can significantly reduce your debt-to-income ratio, which helps improve your credit score.
- Fewer late payments will be listed in your credit history, which also impacts your credit score positively.
- Since your remaining balance can be paid off in one lump sum, you may be out of debt much faster than with other debt relief solutions (which may involve payments over several years).
Drawbacks
- Your credit health may be significantly reduced, causing future lenders to approve you for less new credit at higher rates or even reject your application.
- Creditors are not legally obliged to accept your settlement or cease their collection actions against you during the process.
- Further debt problems can occur if you don’t have the financial strength to deal with any payments or service fees involved.
- Scamming, fraud, identity theft, and predatory fees are possible if you don’t research your “debt settlement company” properly beforehand.
Read this to learn more ways of improving your credit score this year.
Alternatives to Debt Settlement in Red Deer
If you’ve decided against debt settlement in Red Deer, don’t worry. There are plenty of other alternative products, programs, and solutions that you can access in Red Deer. That said, remember that some of these alternatives are more effective than others, and can also involve benefits and drawbacks that affect your financial situation.
Simple Debt Tactics in Red Deer
- Borrowing from friends and/or family
- Attending credit counselling sessions
- Tapping into your home equity
- Using your credit cards and/or savings
More Serious Debt Tactics in Red Deer
- Applying for a debt consolidation loan
- Entering a debt consolidation program
- Filing a consumer proposal
- Declaring personal bankruptcy
Want some information about credit counselling in Canada? Look at this.
Debt Settlement Through Loans Canada
At Loans Canada, we’re well aware of how difficult consumer debt in Red Deer can be to overcome. Don’t worry, we can help you locate the right debt settlement or debt relief solution for you. All you have to do is apply below or call us for more information!
