Consumer debt can be a necessary but extremely tedious thing to deal with, especially when you reside in an urban environment such as Mississauga, where the average cost of living is high enough without adding your unpaid bills on top of it.
The real problem is that once your debts become unmanageable, it’s a steady slope toward severe financial damage, bad credit, and even bankruptcy in the worst of cases. If you’re currently dealing with consumer debt and have been thinking about asking for a debt settlement in Mississauga, we have all the information you need.
To learn how to qualify for debt settlement, check out this article.
How Debt Settlement Works
Generally speaking, debt settlement in Mississauga is a type of offer that you can make toward your creditors that, when accepted, allows you to pay off a significant portion of your outstanding debts through a lump sum payment. Not only would this save you from having to pay your full debt amount, but it can also put an end to any interest or collection penalties that have been piling up against you.
However, as mentioned, your creditors will have to accept your offer for the settlement to go through. In order to do this, you’ll have to prove beyond a reasonable doubt that you cannot pay your debt entirely. Although every creditor operates differently, many will accept a reduced settlement if it means they can bypass an expensive and time-consuming lawsuit or bankruptcy judgement.
Debt settlement may be the appropriate choice when:
- You have at least $10,000 of unsecured consumer debt to cover.
- You have been consistently defaulting on your payments, leading to penalty charges, added interest, and debt collection notices.
- You are financially stable enough to afford all the costs associated with the procedure.
- You are comfortable with the negative impact that this kind of procedure can have on your bank account and credit report.
To learn all about the true cost of borrowing, check out this infographic. Appropriate Debt Types
Another part of becoming eligible for debt settlement in Mississauga is to confirm that your debts are actually appropriate for the process. Like many debt management solutions, only unsecured debt can be included. Some forms of non-credit debt can also be made eligible, as long as no collateral is involved.
Secured debt, on the other hand, means that a creditor still holds the rights to one or more of your assets, so it cannot be included in the settlement. The same goes for many types of government granted or legally assigned debts. To know if your particular debt(s) are eligible, take a look at the examples below.
Eligible Debts
- Credit cards
- Unsecured loans
- Personal lines of credit
- Traditional student loans
- Unpaid taxes
- Non-credit bills (utilities, cell phone, internet, etc.)
Ineligible Debts
- Mortgages
- Vehicle loans
- Home equity loans or lines of credit (HELOC)
- Federal student loans
- Title loans
- Legal fines (lawsuits, alimony, tickets, etc.)
Make sure to ask these question when working with a debt settlement company.
Your Debt Settlement Options
When proposing a debt settlement, there are two routes you can take, each of which can have an impact on your financial profile and credit health. Before you attempt either solution, be sure to speak to a financial advisor or credit counsellor so you can weigh your options and plan accordingly for the process to come.
Debt Settlement Company
If you’re not sure how to handle or offer a proper debt settlement in Mississauga, you can always hire a debt settlement company to initiate the process. Essentially, one of their staff members would reach out to your creditors for you, then attempt to broker a settlement where all parties involved are treated fairly.
If their negotiator is good enough, they may even be able to get your debt reduced by a larger amount than you would achieve alone. That said, it’s important to be aware of the various caveats that may accompany a professional settlement.
Things to watch out for:
- Hiring professional help is not free. Don’t sign up with a debt settlement company unless you’re aware of and can easily afford their service fee.
- No debt settlement is legally binding, even those that are professionally brokered. Creditors are not obligated to accept your offer or cease their debt collection efforts if they do.
- There are many predatory companies and scam artists out there who will use your desperation against you. These organizations will either charge you unreasonable fees for ineffective help or, even worse, steal your money and identity to commit fraud.
- No real debt settlement company can guarantee a 100% success rate or stop creditors from suing you, nor can they miraculously fix your credit and finances once the ordeal ends. Always research a debt settlement company properly before you give them any of your personal or financial information.
Solo Debt Settlement
If you have some negotiating skills of your own and would prefer not to take the risks associated with a debt settlement company, you can always offer your creditors a solo settlement. This will require a bit more preparation on your part but can certainly save you money in the long run because you won’t have to pay for professional aid.
That said, negotiating your own debt settlement in Mississauga isn’t the easiest thing to do, particularly if you’re not familiar with how they work. Though there are fewer risks involved, your finances can still be affected, so you should once again get some solid advice for how to proceed cautiously.
Everything you need to know about negotiating your own debt settlement, click here.
Things to watch out for:
- You must be comfortable contacting your creditors by yourself and providing them with the appropriate proof of your inability to pay in full. Sufficient proof can include but may not be limited to your recent bank statements, pay stubs, and other such financial information.
- Again, debt settlements are not guaranteed to be accepted. Without professional help, you might have a harder time arguing your case.
- It’s also important to know when you’re being treated unfairly. If your creditors counter-offer with a debt settlement that seems out of your price range, the final payment could be too much for you to manage financially. Before agreeing to any deals, take a step back and carefully consider the potential consequences.
How Debt Settlement Impacts Your Credit
Another important concern to be aware of when it comes to debt settlement in Mississauga is the negative impact the process can have on your credit. That’s right, depending on how your lender handles the situation, debt settlement is likely going to show up on your credit report and remain in your credit history for several years.
During the ordeal, any credit accounts associated with the process will receive a credit rating of R7, which is reserved for borrowers who are in the midst of special debt settlement arrangements. If you apply for new credit while the damage is in effect and your potential lender does a credit check, they may consider you too risky to approve. If you are eligible, it will usually be for a less favorable product with a higher interest rate.
Nonetheless, if you complete your settlement as agreed, your debt sources should inform Canada’s credit bureaus (Equifax and TransUnion) of your progress. Soon after, your credit report will be modified and the damage will gradually reverse.
Obviously, if you don’t pay on time and in full, your credit health will only get worse, so it’s important to handle your debt settlement responsibly.
For more information about what impacts your credit score? Check this out. Advantages and Disadvantages of Debt Settlement In Mississauga
As far as debt management tactics go, debt settlement is one of the more simple and fast-acting procedures. If you make an acceptable offer and pay as scheduled, the situation should be resolved in a matter of weeks and you’ll hopefully be debt-free from that point on.
That said, debt settlement is clearly not for everyone and, like most debt solutions, are not without certain risks and consequences. If you’re having trouble deciding whether or not debt settlement is best for your case, check out the advantages and disadvantages below.
Advantages
- Your debt-to-income ratio may be significantly reduced, which will gradually improve your credit score.
- Many creditors would rather accept partial payment than take you to court and potentially receive nothing.
- If you pay your settlement as agreed, no more late penalties will drain your savings or show up on your credit report.
- An acceptable debt settlement is a much faster way to resolve such situations than most other debt management methods, many of which can take months, even years to complete (debt consolidation, bankruptcy, etc.)
Disadvantages
- Your credit report will be negatively affected for several years, which can lead to denied applications or less favorable conditions for new credit products.
- Since the process is not legally binding, creditors will have the right to reject your offer or pursue debt collection throughout the arrangement.
- If you can’t afford all the costs involved with a solo or professional debt settlement, your financial problems could get worse.
Alternatives to Debt Settlement
Although debt settlement in Mississauga has plenty of advantages, for you, the potential risks may outweigh the rewards. In that case, there are a number of other debt management programs, products, and solutions that are available in Mississauga, such as:
- Borrowing from friends or family
- Applying for a debt consolidation loan
- Signing up for credit counselling sessions
- Entering a debt consolidation program (via credit counselling)
- Filing consumer proposal
- Declaring personal bankruptcy
That said, any of the above solutions can also have a drastic positive and negative impact on your financial profile. Once again, be sure to speak to a financial advisor or licensed credit counsellor before you attempt any debt management procedure.
Interested in Debt Settlement?
Whether you’ve chosen to offer a debt settlement or you would prefer another debt management alternative, rest assured that Loans Canada can help you find it in Mississauga. Simply contact us today or check out our website for more information!
