There are plenty of places debt can come from. However, that shouldn’t stop you from getting ahead. If your debt is getting out of hand and basic solutions aren’t enough, debt settlement in Prince Edward Island might be the right move. Curious to know more? Keep reading, because Loans Canada has the information you need.
Two Types of Debt Settlement
A debt settlement involves reaching out to your creditors to come up with an agreement that allows you to pay back a portion of what you owe, rather than your full outstanding balance. If the terms of the settlement are accepted, you’ll likely pay back the amount in one lump sum. Generally, debt settlement in Prince Edward Island can be done in two ways:
Solo Negotiation
It is possible to negotiate a debt settlement agreement by yourself. You should be able to prove to your creditors that you cannot pay them back in full within a reasonable amount of time. This may work because some creditors would prefer that you pay back some of what you owe, rather than you going bankrupt and pay them nothing.
Here’s how to negotiate a debt settlement on your own.
Before you choose to negotiate a solo debt settlement, it’s helpful to seek outside advice from a credit counsellor or financial advisor, simply to make sure it’s the right move. Ask them whatever questions about debt settlement you can think of. They can even talk you through your negotiation, so you’ll know exactly what to say and how your creditors should be treating you.
Debt Settlement Company Negotiation
Since debt settlement can be a bit complicated, it’s often reassuring to have someone in your corner, making sure your creditors are treating you fairly and vice versa. However, before choosing a debt settlement company, understand that there are a few more risks involved than with a solo negotiation.
Firstly, these companies aren’t free-of-charge and, like any business, they’ll need compensation for their services. While they usually won’t charge you until your debt settlement is complete, ask them about their fees beforehand and factor those costs into your budget. Another expense you can’t afford may result in more debt issues.
Secondly, not all debt settlement companies are legitimate. Unfortunately, scammers are aware that people need debt settlements because they are in serious financial situations. Desperate to get rid of their debt, unsuspecting borrowers give out their personal and financial information without thinking it through. Then, not only are they still stuck in debt, their finances are compromised. Always do research before you choose a debt settlement company.
Want to learn how to create a debt repayment plan on your own? Check out this infographic. Talking To a Debt Settlement Company
If you’d prefer the aid of a debt settlement company, there are questions you should be asking them that will help you confirm their legitimacy and whether they’re right for your situation, including but not limited to:
- What do you charge for your services? There may be a few other fees and administrative costs to deal with. Make sure they detail each one so you can factor them into your budget.
- What is the largest amount my creditors are willing to deduct? Again, the purpose of a debt settlement company is to negotiate with your creditors for the best deal possible. If you feel that you can get a larger reduction on your own or it seems like the company is not trying hard enough, walk away or find a company with a better reputation for success.
- Is it possible to make more than one lump sum payment? Since your outstanding balance is already reduced and everyone wants the ordeal to be over quickly, your creditors generally want you to make a single lump sum payment. However, maybe your debt settlement company can negotiate otherwise, as you may not even be able to afford the full payment at once, and separating it into a few smaller ones might be more plausible.
For more questions to ask your debt settlement company, look at this.
Additional Things to Consider
Now, before you decide that debt settlement in Prince Edward Island is right for you, there are a few important considerations to take into account, such as:
- To qualify, you’ll need to have at least $10,000 worth of debt.
- Your creditors may inspect your finances, credit, and income to verify that you can’t pay them in full. Your settlement may be denied if they determine otherwise.
- Only unsecured (non-collateral) debts will qualify, such as:
- Credit cards
- Personal lines of credit
- Various outstanding bills (internet, cell phone, utilities, etc.)
- Unsecured installment-based loans (personal, short-term, bad credit, etc.)
- Secured (collateral-based) debts may not qualify, such as:
- Mortgage
- Home equity loans and home equity lines of credit
- Secured vehicle loans
- Secured installment-based loans
Want to know more about installment loans in Prince Edward Island? Look here.
When Is Debt Settlement Right For You?
Debt settlement in Prince Edward Island is a drastic step that may only cause further strain to your already stressful financial situation. As such, you should only choose this path when:
- You have at least $10,000 in consumer debt and cannot pay it back through conventional means (savings, income, credit cards, borrowing from others, etc.)
- You’re sure you can afford the full lump sum payment involved
- You want your debt-to-income ratio to be lower (good for your credit score)
- You’re comfortable with the settlement showing up on your credit report for several years and dropping your credit score
- You want to reduce the amount of interest and payment dates that come with all your unpaid credit products
- You want to avoid even more drastic steps, such as filing for a consumer proposal or a bankruptcy
Click here for more information about qualifying for debt settlement.
Debt Settlement and Your Credit Score
In Canada, your credit score is a useful tool that you can use to get approved for loans and credit products. In addition, the higher your score is, the more affordable your interest rate for those products will be because your lenders will consider you less risky. Nonetheless, you need to be comfortable with the significant impact debt settlement will have on your credit score. This is because debt settlement is a type of financial delinquency, just like a consumer proposal or a bankruptcy (only less damaging). Delinquencies will show up on your credit report for 3-7 years after they are completed. They also cause your credit score to decrease, sometimes by a big margin.
Click here to learn how long other information stays on your credit report.
As a result, it may be difficult to get approved for other credit products during the settlement and even in the years that follow, while you wait for Canada’s credit reporting agencies (Equifax and TransUnion) to expunge it from your report. During that time, potential creditors can view your report, see your damaged credit, and may not want to lend you new credit, considering that you were already in debt to other creditors. Make sure that you’re able to get by without loans, credit cards, and other products until you can improve your credit again.
Take a look at this infographic for even more information about credit scores. Look On The Bright Side
All this being said, the ultimate benefit of debt settlement is that, if all goes well, you’ll have less debt on your plate. This should make it easier to keep up with your other outstanding payments. Slowly but surely, you can use the money you’ve saved from your reduced payment to deal with all your other expenses. As long as you’re making your other payments on time and in full, you can eventually work your way back up to good credit, and your bad credit days will be in the past.
For more information about credit improvement on Prince Edward Island, look here.
Instead of Debt Settlement
During your search for debt management tips and products, you may have concluded that debt settlement isn’t right for you after all. Don’t worry, there are plenty of alternatives that you can choose from, including but not limited to:
Debt Consolidation Loan or Program
Both of these services allow you to lump all your outstanding debts together and pay them off in one shot. These solutions are effective because both will leave you with only one monthly payment to deal with until your new balance is paid off in full.
- A debt consolidation loan helps you do this through installment-style payments and can be acquired through your bank or another creditor.
- A debt consolidation program has the same effect, only you’ll make payments toward a credit counsellor, who will reach out to your creditors on your behalf and transfer your payments to them.
Want to learn more about credit counselling on Prince Edward Island? Check this out.
Using Your Home Equity
If you’re mortgaging a home on Prince Edward Island, you may have built up some home equity, which happens when you make mortgage payments or increase your home’s market value in some way (renovations, real estate price increase, etc.). Before you choose to access your equity, be certain that you can afford to pay it back in full and on time. Home equity products are secured against your home. If you default on too many payments, you can risk losing your home to a foreclosure.
Generally speaking, at least 20% equity is required in order to access it. Once you’ve built up that much, there are two different ways to use it:
- A home equity loan allows you to take out a specific loan amount. And, like other kinds of loans, you’ll pay that amount back through scheduled installments over a timeline that’s agreed upon with your lender.
- A home equity line of credit allows you to withdraw from a set credit limit in whatever amounts are necessary. And, similar to a credit card or personal line of credit, you can return the borrowed amounts on a monthly basis, this time with the option of making a minimum payment when you can’t afford the full balance.
Filing a Consumer Proposal or Bankruptcy
As we said, debt settlement in Prince Edward Island is meant to help you avoid filing for a consumer proposal or bankruptcy, as both the latter choices can cause even worse damage to your financial health. However, they are worth mentioning, especially if your debt situation has become so unmanageable that debt settlement isn’t a viable solution.
- A consumer proposal involves finding a licensed insolvency trustee to oversee the process and file a motion that stops your creditors’ collection efforts against you, including wage garnishment. Your creditors will need to discuss and accept the proposal. If so, you’ll make payments through your trustee toward your creditors, over several years, until your full debt is repaid. A record of the proposal will then remain on your credit report for 3 years following completion.
- A bankruptcy also requires an insolvency trustee to oversee the process. Again, any collection efforts will cease. However, all your unsecured debts will be eliminated and you’ll start from scratch. The reason this is the most drastic debt solution of all is that most of your assets (home, car, etc.) will be taken away as payment. All your credit accounts will be frozen and you’ll likely have to make surplus income payments to the court over several years. In addition, a black mark will remain on your credit report for 7 years following completion. Only consider bankruptcy when you have no other choice!
Settled on Debt Settlement?
If debt settlement has proven to be the right choice for you, there’s no better place to go than Loans Canada. We’re confident that we can help you with your debt settlement or any other debt solution you need on Prince Edward Island. Contact us today!
