Debt of any kind can be very harmful to a Manitoba borrower’s finances, especially when it gets out of hand. Ironically, debt can be so easy to rack up, but pretty hard to get rid off. This is why many consumers in Manitoba may need to seek the help of a debt relief service at some point during their debt repayment journey. Debt settlement is one of these services and can assist Manitoba citizens in becoming debt-free, once and for all.
What is the Purpose of Debt Settlement in Manitoba?
Debt settlement is one of the more drastic debt management options available to Manitoba credit users. That being said, it is still a less drastic and more beneficial option than filing for a consumer proposal or declaring personal bankruptcy, both of which may be far more harmful to your credit and finances.
Essentially, a debt settlement in Manitoba involves offering a proposal to your creditors that, if accepted, allows you to settle your debt for less than you owe. While it is possible to negotiate a debt settlement on your own, you can also seek out the help of a debt settlement company in Manitoba. In that case, the company or professional in question will evaluate your finances, confirm you have no possibility of paying off their full debt amount, then offer a settlement to the creditors on your behalf. If the creditors don’t accept the settlement, the borrower may have to seek other alternatives in Manitoba. However, as we said, if the settlement is accepted, you’ll pay back the amount you offered and your creditors will mark your debt as settled and you’ll be debt free.
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When is a Debt Settlement an Appropriate Option?
Remember, debt settlement isn’t for everyone in Manitoba, as they come with a few risks that should definitely be considered. Essentially, debt settlement should be reserved for borrowers who:
- Are more than $10,000 in debt, but who have not yet reached the point where a consumer proposal or bankruptcy are viable options
- Cannot repay their creditors in full within a reasonable amount of time
- Cannot get approved for debt consolidation or other less drastic debt options
- Want to avoid collection agencies, wage garnishment, and other harmful results
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The Potential Advantages of Working with a Debt Settlement Company in Manitoba
While debt settlement does come with a few potential drawbacks, they may be outweighed by its benefits. Here are a few of the more notable advantages that come with negotiating a debt settlement:
- A lower debt-to-income ratio – One of the best parts about settling your debt is that you’ll be lowering your debt-to-income ratio with every payment, assuming you manage to avoid other unnecessary debt during that time. The lower your ratio is, the higher your credit score will grow.
- Less late payments – When you’ve got a mountain of debt to deal with, making on-time payments for your other credit products can be difficult. As a result, late payments come with penalty charges, added interest, and a mark on your credit report. However, debt settlement can help you avoid further late payments, thereby reducing your debt and the number of red flags on your credit report.
- Out of debt quicker – The sooner your debts are paid off, the sooner you can get back to rebuilding your credit and savings. And, the faster your credit and finances are repaired, the easier it will be to apply for credit products with lower interest rates.
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The Potential Disadvantages of Working with a Debt Settlement Company in Manitoba
As with any sort of credit product, it’s very important to consider the potential consequences of negotiating a debt settlement, whether it’s by yourself or with a professional. Some of those risks include:
- A lasting effect on your credit – Any debt settlement will be reported by your creditors to the Canadian credit bureau they work with (either Equifax or TransUnion). A record of that settlement will remain there for several years. Lenders can then see a record of your debt settlement when you apply for new credit and may choose to deny your applications.
- More debt may accumulate – Obviously, if you don’t manage your payments properly, debt settlement could only lead to even worse debt. Always make your payments on time and in full for the best results.
How Would a Debt Settlement Affect My Credit?
Unfortunately, a debt settlement can have a negative impact on your credit score and credit rating. On top of that, your credit might have already been damaged by your initial unpaid debt, making the whole ordeal particularly difficult to recover from. That being said, it’s best not to worry about your credit too much while you’re in the middle of a debt settlement. Yes, your credit will be damaged for some time, making it more difficult for you to get approved for some financial products in Manitoba. However, it’s far better to deal with bad credit for a while than to be in heavy debt forever.
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What Debts Qualify For Debt Settlement in Manitoba?
One very important thing to remember about debt settlement is that, like other debt management products, only certain types of debt will qualify, so make sure to ask your debt settlement company about this. Generally speaking, only unsecured debts (where no collateral is involved) are qualifiable, including but not limited to:
- Credit card debt
- Personal lines of credit
- Unsecured short-term, personal, and installment loans
- Internet, cell phone, and utility bills
- Student loans
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Secured debts (which do involve collateral, often don’t qualify. For example:
- Mortgage payments
- Car loan payments
- Secured short-term, personal, and installment loans
- Home equity loans and HELOCs (home equity lines of credit)
For additional information about qualifying for debt settlement, check this out.
What Questions Should I Ask a Debt Settlement Company?
If you’ve decided to hire a debt settlement company in Manitoba instead of negotiating with your creditors by yourself, be sure that they are a legitimate organization with a reputation for successfully helping their clients. While doing some prior research is essential, you should also ask them some important questions, including but not limited to:
Does Your Company Charge an Advanced Fee?
One of the most important things to ask about is whether or not the company charges a fee before the debt settlement has gone through. Be careful, because a legitimate company should only request payment after a settlement has been reached. If they try to charge you some kind of fee prior to this, it’s best to stay away from them.
What About Your Other Service Costs?
Any reputable debt settlement company in Manitoba should tell you exactly how much their services will cost you by the end of the process. That includes your total payments and interest, as well as any administrative and legal fees associated. If the supposed company refuses to detail all these costs or is avoiding your questions in some way, it’s another sign that they may be trying to scam you. In fact, scam artists prey on borrowers who are so desperate to settle their debts that they don’t think about the potential costs. Don’t give them any formation and report them to the proper authorities.
Take a look at these other Canadian financial scams.
How Often Can I Make Payments?
When it comes to debt settlement, you’ll need to make one lump sum payment to settle your debts with your creditors. If you’re working with a debt settlement company, they may require you to deposit regular payments into a specific account to save up a large settlement before you approach your creditors.
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Are There Any Other Debt Relief Options Available in Manitoba?
If a debt settlement doesn’t seem like the most logical choice for you, there are some alternatives that you can consider, including but not limited to:
- Debt consolidation loans
- Debt consolidation programs
- Consumer proposals
- Bankruptcy
For more alternatives and financial information, you can also seek credit counselling in Manitoba.
Need to Settle Your Debts? Talk to Loans Canada!
If you’d like to know more about the debt settlement process or about any other debt solutions, contact Loans Canada today. It’s our job to help you eliminate your debt, once and for all!
