If you’re a resident of Burnaby, you know how popular your neighborhood has become. Because of that, it’s possible that your living costs have gradually increased over the past few years. Unfortunately, that’s when consumer debt tends to take over your life.
If this sounds all too familiar to you, choosing a debt settlement in Burnaby could be the solution you need, keep reading for more information.
Need to consolidate some credit card debt? Look here first.
Choosing Debt Settlement
Essentially, debt settlement involves reaching out to your creditors and negotiating a deal that significantly reduces your outstanding debt amount. If accepted, that settlement would then allow you pay off the remaining balance in one lump sum, hopefully ending your debt, as well as any collection penalties against you.
Although there are two debt settlement methods that we’ll discuss further below, it can be difficult to determine whether this solution is the right choice for your situation. As there are certainly other debt management alternatives out there, we’ve included a few examples so you’ll have an easier time making your decision.
Only choose a debt settlement in Burnaby if:
- You’re being plagued by late payments, high-interest rates, and penalty fees
- None of your usual payment methods are effective (cards, savings, etc.)
- You don’t qualify for a debt consolidation loan or program
- You can’t or don’t want to borrow from family/friends
- You’re comfortable with some damage to your credit
- Your income is enough to afford the full payment, plus any other costs involved
- You want to avoid more drastic measures, a consumer proposal or a bankruptcy
Want to learn how to create your own debt repayment plan? Click here. Picking a Debt Settlement Method in Burnaby
While you should still do plenty of research prior to choosing any debt management solution, let’s discuss the two forms of debt settlement so we can continue narrowing down your options.
Solo Debt Settlement
Although the second method can be helpful in other ways, negotiating a debt settlement by yourself can be a good way of reducing the overall costs associated with this process. That is, if you’re a good negotiator and your creditors are receptive. In this case, you’ll have to provide proof that shows why you’re unable to pay your full balance.
Viable proof can include bank statements, paychecks, and lists of your other debts. If you then offer a reasonable settlement, some creditors will accept it because they would rather get some of their money back and avoid any legal hassles that would come from a consumer proposal or bankruptcy.
Is it possible to pay off a consumer proposal with a loan? Find out here.
Professional Debt Settlement
If you’re not the best negotiator and would prefer some assistance, hiring a debt settlement company is the other route, which involves the same process, only brokered by a trained professional. You’ll still need to provide proof that you can’t pay in full but negotiations may go a lot smoother.
However, as we mentioned, a solo debt settlement might be cheaper because there will, of course, be a service fee for hiring professional help. If you can’t afford the company’s fee, plus all the other costs associated with the process, you may simply be subject to further debt issues soon after.
Look Out For Scams
On top of that, it’s best if you know that there are many predatory organizations and scam artists that act as legitimate debt settlement sources so they can steal from you. Never give away your personal or banking information, nor your credit card number to any “company” that doesn’t have good credentials and a reputation for success.
Some predatory companies may settle your debt but charge you a ridiculous price that they’ll only tell you about afterward. Don’t trust them if they aren’t upfront about all their costs or if their sales representatives are being pushy or refuse to answer your questions in any way.
Scam artists are even worse because they are usually out to steal both your money and your identity. This is a particular problem in the online world. If this “company” doesn’t have a confirmable address and a listing with the Better Business Bureau, if they demand your financial information or payment prior to helping you, walk away.
Do you know what the true cost of borrowing is? Learn all about it here. Eligible and Ineligible Debts
Another thing to consider when researching debt settlement techniques is that certain types of debt may not actually qualify for coverage. As is the case with many other debt management products and programs, only unsecured debt is eligible because there is no collateral attached to it. Some kinds of non-credit debt can also be included.
Examples:
- Personal loans & lines of credit
- Payday loans
- Non-credit bills (utilities, internet, etc.)
- Non-federal student loans
- Credit cards
Unfortunately, if any of your debts are related to secured credit products, meaning you offered up your assets when you originally applied, they cannot be included in a debt settlement in Burnaby. This may also apply to many forms of government or legally assigned debts.
Examples:
- Mortgage & home equity products
- Secured loans & lines of credit
- Vehicle loans
- Title loans
- Legal fines (tickets, alimony, etc.)
Want to know how secured debt is treated during bankruptcy? Look at this.
How Your Credit is Affected by a Debt Settlement
One of the last considerations to make is the way that debt settlement will affect your credit score, as well as how you’re planning to recover from the results.
The Overall Impact
Creditors will usually report your debt settlement to Canada’s main credit bureaus (Equifax and TransUnion). A record of it will then show up on your credit report and any accounts associated with the process will receive an R7 credit rating. If you pay your settlement on time, your creditors should report your debt as settled” and the situation will reverse itself.
However, if you don’t complete all payments, the debt will remain unsettled and gradually ruin your credit. Even if you pay on time, the event will stay in your credit history for several years. During that time, potential creditors may charge you higher interest rates or reject your applications altogether when you apply for new credit.
This is another reason why it pays to have a decent income before you attempt a debt settlement. Limited access to credit products makes it harder to fix damaged credit later on. Nevertheless, if you’re committed and patient, credit improvement can be achieved once your debt settlement in Burnaby is complete.
Check out this infographic for more information about what affects your credit score. Advantages and Disadvantages
Before we conclude, let’s do a quick recap of the advantages and disadvantages associated with a debt settlement in Burnaby. That way, you can solidify your decision as to whether or not it’s the best option for you.
Advantages:
- It can significantly reduce your debt-to-income ratio
- You may not have to pay your full outstanding balance (saving you money)
- Less debt allows you to recover financially and improve your credit
- Safer than a consumer proposal or a bankruptcy
- Can prevent some debt collection penalties
Disadvantages:
- Damages your credit temporarily
- Worse debt-related consequences will occur if you don’t pay as assigned
- Some debt settlement companies charge unaffordable service rates
- Scamming, fraud, and identity theft are possible if you aren’t careful
- Not legally binding, so creditors and debt collectors can still sue you (until the process is over)
Alternatives to Debt Settlement
If you’ve decided that a debt settlement actually isn’t the option for you, there are some alternative products and programs you can try. However, they can also have both positive and negative effects on your financial well being, so it’s always important to consult a financial advisor or credit counsellor beforehand.
Alternatives Include:
- Debt consolidation loan
- Debt consolidation program
- Credit counselling
- Consumer proposal
- Bankruptcy
Need to Settle Your Debts? Try Loans Canada
If you’re looking for a debt settlement or another debt relief solution in Burnaby, don’t hesitate to contact Loans Canada. Together, we can find a way for you to manage your current debts and avoid taking more in the future. Call us today or apply below when you’re ready to get started!
