Once your debt gets out of hand, it can be very difficult to resolve the situation and still have money left for your other essential expenses in Nova Scotia. Unless you find a solution, you may be stuck in debt for years, which results in all sorts of damage to your credit and finances.
If this is what you are currently dealing with, there are plenty of debt management products and options available to any Nova Scotia credit user. One of those options is debt settlement, keep reading for everything you need to know.
Before You Apply For Debt Settlement…
While debt settlement can be beneficial, it does come with some disadvantages that you may not be comfortable with, which we’ll discuss further below. So, before you decide to settle your debts in Nova Scotia, consider the following alternatives:
Borrowing From Friends or Family
While this isn’t an option for everyone, getting your friends or family to help you might save you a lot of financial hardship. Just make sure you can afford to pay them back someday to avoid any personal problems between you and them.
Borrowing From Your Home Equity
If you’ve built up some home equity by paying down your mortgage or increasing the value of your home, you may be able to get approved for a home equity loan or a HELOC (home equity line of credit). You can then consolidate your debts and pay your home equity back over time. However, only choose this option if you’re certain you can make all your payments on time and in full, as home equity products are secured against your home.
Click here to learn how to borrow using your home equity.
Debt Consolidation Loan or Program
When your debt is becoming unmanageable, you can also consider either a debt consolidation loan or program. A debt consolidation loan allows you to rectify all your other outstanding debts at once, leaving you with one monthly payment and interest rate to deal with. A debt consolidation program is a similar payment method, only you’ll be working with a certified credit counsellor in Nova Scotia, who will help you contact your lenders and get the job done. However, once again, failing to keep up with your payments may result in worse debt problems, so consider this before you apply.
Need help making a plan to tackle your debt? Click here.
Consumer Proposal or Bankruptcy
Both these options are legally binding processes in Nova Scotia which are put in motion by a licensed insolvency trustee and will prevent any debt collection efforts, wage garnishments, or other legal actions against you.
A consumer proposal in Nova Scotia is when your trustee negotiates with your lenders for you to pay them back over several years through equally divided installments, which you’ll make toward your trustee. A bankruptcy, on the other hand, allows you to be completely debt free, often leaving you with surplus income payments toward the court itself.
While both these debt solutions may sound appealing, there are by far the most drastic and should only be considered when you have no other choice. That’s because they can be hard to qualify for and, if accepted, both options have a severe negative impact on both your credit score and finances that can last for years following completion.
How long does information stay on your credit report? Find out here.
What to Expect From a Debt Settlement in Nova Scotia
Let’s say none of the above options work for you. A debt settlement is an agreement that you’ll strike with your lenders, wherein you would be able to settle your debt at a smaller balance than you actually owe. If the settlement is accepted, you can pay your lenders back through a lump sum payment. You can negotiate a debt settlement in one of two ways:
On Your Own
It is often possible to negotiate a debt settlement without any outside help. If you choose this route, you’ll have to prove to your lenders that you don’t have the capacity to pay them back in full. It’s also recommended to speak to a professional credit counsellor or financial advisor in Nova Scotia before you decide to do this. Consider these facts:
- Generally speaking, you must have at least $10,000 of debt in order to qualify.
- Your credit and income will likely be examined to confirm your inability to pay using conventional methods.
- Most secured debts, collateral-based debts do not qualify, such as:
- Mortgages
- Home equity loans and HELOCs (home equity lines of credit)
- Secured loans for cars or other vehicles
- Secured personal, bad credit, installment, or short-term loans
- Only certain types of unsecured, non-collateral debts will qualify, such as:
- Credit cards
- Personal lines of credit
- Utility, internet, cell phone bills
- Unsecured loans
For more information about negotiating a debt settlement on your own, read this.
With a Debt Settlement Company
If you can’t negotiate a debt settlement by yourself or you would prefer the help of a professional to ease the process along, there are debt settlement companies in Nova Scotia that exist specifically for that purpose. Instead of you going through the motions alone, the company can negotiate with your lenders on your behalf and facilitate a settlement that’s fair for all parties involved. If you’re applying with a debt settlement company, however, be sure to do some research in advance because:
- Debt settlement companies are not free. After your settlement has been reached, you’ll have to pay a fee for their services, which may result in further debt if you don’t manage it and your payments properly.
- Scam artists establish fake companies to lure in those who are desperate to settle their debts. If they don’t have a good reputation, a page in the Better Business Bureau database or they try to charge you a fee before your settlement has been processed, don’t give them any information and walk away.
Take a look at these other Canadian financial scams.
Advantages and Disadvantages of Debt Settlement in Nova Scotia
As we mentioned, there are certain elements that make debt settlement beneficial for your financial situation and others that may make it worse.
Advantages
- If accepted, your outstanding debt level may be largely reduced.
- If you manage your payments properly, you’ll be actively reducing your debt-to-income ratio, which is very good for your credit score.
- You should be able to avoid further late penalties and mounting interest from your previously outstanding debts.
- The sooner your debts are settled, the sooner you can get back to rebuilding your credit and finances. This will help you get approved for future credit products with more reasonable interest rates.
Disadvantages
- Your credit score will likely take a big hit, the effect of which can take a lot of time and effort to reverse.
- A record of your settlement will appear on your credit report, where it will stay for several years following completion. The amount of time it stays there depends on the credit reporting agency you look at (Equifax or TransUnion).
- Debt settlement companies cannot legally guarantee a 100% success rate, nor can they prevent lenders from pursuing additional legal actions against you.
- You’ll still be in debt during the settlement. You must be willing to change your financial habits. Otherwise, failing to keep up with your scheduled payments will only make your debt situation worse.
Trying to qualify for a debt settlement? Here’s how you can do it.
What to Ask Your Debt Settlement Company
If you’ve decided that hiring a debt settlement company is the best course of action, there are a few questions that you should ask them, including but not limited to:
- What do you charge in terms of payments, interest rates, and fees? Any reputable company in Nova Scotia should have this exact information on-hand. There should be no costs that are hidden from you!
- How can I make payments? Different companies in Nova Scotia come with different methods of payment. Just make sure they are a legitimate company before you hand over any financial information.
- How long will my settlement go on for? Depending on your payment rate and debt amount, your settlement may last for several months to several years. You can reduce your payment period by making one large or a few smaller lump sum payments.
Looking for more information about credit scores? Take a look at this infographic.
The Effect of a Debt Settlement on Your Credit Score
As we said, one of the main disadvantages of a debt settlement in Nova Scotia is that it will have a significant negative impact on your credit score. That impact can make it pretty difficult to be approved for credit products at affordable interest rates, at least until your debt settlement is finished. In fact, any large amount of damage to your credit score can take months of effort to alleviate.
To learn more about the impact a debt settlement has on your credit, read this.
However, it’s best to look on the bright side, which is possible when you consider the positive effect of the debt settlement process, namely that you’ll likely be out of debt faster than you would be if you tried to consolidate your debts on your own. Once your debt is eliminated, you can get swiftly back on track toward improving your credit. After all, it’s far better to have bad credit for a little while than to be stuck in a cycle of debt for what could be the rest of your life.
Looking for a bad credit loan in Nova Scotia? Check this out.
Your Debt Won’t Settle Itself!
At Loans Canada, our mission is to help you deal with your debt by whatever means necessary. If you’re looking for debt settlement in Nova Scotia, our team is here for you. Apply with us today or contact us for more information.
