As a credit user in Charlottetown, taking on some consumer debt can benefit you in many ways. Then again, the opposite effect can happen when you accumulate too much debt to manage comfortably. From then on, it can become very easy to lose track of all your payment dates and unpaid balances. If that kind of situation ever arises, your financial profile and credit health would be in danger, so a solution is needed.
While there are other debt management products out there, debt settlement is one of the most popular ways that Charlottetown borrowers deal with their financial problems.
Benefits and Drawbacks of Debt Settlement
Debt settlement in Charlottetown involves reaching out to the creditors you hold outstanding balances with, wherein you can attempt to arrange a deal that allows you to pay off a portion of the amount of what you owe, rather than all of it. Instead of paying your settlement through installments, as you would with a debt consolidation program, you would instead make one lump sum payment to satisfy the creditors’ demands.
Before you choose debt settlement, however, understand that there are various benefits and drawbacks relating to the process that can impact your financial situation as it stands. We’ve included a few examples so you’ll have an easier time deciding whether this type of settlement is your most appropriate path.
Benefits
- Your debt level and debt-to-income ratio can potentially be reduced by a significant amount, which is very good for your savings and credit score.
- You’ll be lessening the amount of late or otherwise defaulted payments that will show up on your credit report, again changing your credit health for the better.
- If the deal goes through without a hitch, any creditors and/or collection agencies should be satisfied enough that they’ll cease pursuing you for full payment. You can then have a fresh start.
- The faster you decrease your outstanding debts, the easier it will be for you to get back on track and reverse the situation.
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Drawbacks
- Creditors don’t have to accept the settlement. If the amount you offer is insufficient, you may have to look for help elsewhere.
- Debt settlement isn’t bound by legal limitations. Creditors and debt collectors will still be permitted to demand payment from you. They can even sue you in court if you owe enough.
- A record of your debt settlement will appear on your credit report once Canada’s credit bureaus are informed of the incident. As a result, future creditors may not trust you with new credit, at least until you’ve reversed your debt situation.
- If you don’t make your complete payment by its due date, your creditors will report the debt as “not settled” to the bureaus. This will, in turn, further damage your credit health.
- Again, if you can’t afford the full designated settlement amount, more late penalties, added interest, and overall financial problems will happen to you.
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If you’ve concluded that debt settlement is not the most appealing choice, there are other ways to conquer your high interest debt in Charlottetown. Nonetheless, before you choose any of them, be sure to do some research and discuss your options with a financial advisor, as they can also affect your finances in various ways.
Alternatives to debt settlement in Charlottetown include but aren’t restricted to:
- Help from trusted friends or family members
- Drawing the necessary funds from your home equity
- Applying for a debt consolidation loan through another lender
- Attending regular credit counselling sessions
- Filing for a consumer proposal
- Declaring personal bankruptcy
Important Note: While a consumer proposal or bankruptcy can very effective debt management methods, they can also be far more hazardous to your finances than any debt settlement. Only consider these options when you have a totally unmanageable amount of debt and can comfortably deal with the negative effect they can cause.
Debts That Are Eligible For Settlement
One essential debt settlement factor to consider is that not all debts are eligible for this procedure. In fact, eligible debts are generally restricted to the unsecured variety, meaning those that aren’t secured by collateral, which happens when you offer up your house, car, or another asset as security to gain approval for some credit products. So, if you only have secured debt, a debt settlement in Charlottetown is likely not the best option for you. We’ve included some examples of both debt types so you’ll know if yours are eligible.
Unsecured Debts (Eligible)
- Non-government student loans
- Bills from utility companies and other non-credit sources
- Credit cards
- Personal lines of credit
- Loans without collateral
- Bills from elective surgeries and other medical procedures
Secured Debts (Not Eligible)
- Government approved student loans
- Lawsuits, traffic tickets, or other legal procedures
- Collateralized loans
- Home equity loans or HELOCs (home equity lines of credit)
- Mortgages
- Car and other vehicle loans
The Impact On Your Credit
In reality, most debt management products are going to impact your credit in some way, and debt settlement is no different. Since the money you owe is a significant factor that credit bureaus use to calculate your credit score, you have to try and get your outstanding balance settled by the largest amount possible. The more debt you can get written off, the more your credit score will rise once your settlement ends.
Remember, while a reasonable debt settlement can make your credit score rise, it will also be stuck on your credit report for some time, even after it’s finished. That being said, it’s still far better for your credit to rectify the situation now, rather than letting it drag out. So, once your settlement goes through, be sure to improve your credit as much as possible through responsible payments, regularly monitoring your credit report for errors, and other such techniques. That way you won’t have to wait too long before you’re creditworthy enough to gain approval for new credit and affordable interest rates.
Check out this infographic to learn more about your credit score.The Main Debt Settlement Methods
If you’ve concluded that a debt settlement is right for you, there are two methods that you can attempt. Though they are similar in their goal, they do differ in terms of how they are executed, so study up on both methods before you choose either.
Method #1: DIY Debt Settlement
The “do-it-yourself” method might be the primary choice if you don’t want to hire any outside help, your negotiation skills are good and you don’t mind talking to your creditors over the phone or in person. Just be sure that, during your meeting, you include lots of evidence that proves you cannot afford your full unpaid balance, such as bank statements and recent paychecks.
On the contrary, a DIY debt settlement may not be right for everyone. For instance, if you’re not experienced in the matter and don’t know how much to offer, your settlement may end up getting rejected. Or, what if you offer too much and can’t afford the designated payment? That would also lead to more debt problems down the line because you won’t have enough savings left over for your other expenses. Only attempt a solo settlement if you’re versed in the subject and confident in your ability.
Method #2: Debt Settlement Company
If the prospect of dealing with your creditors alone is too nerve-racking or your solo offer was rejected initially, you can also get help from a debt settlement company. These organizations are established specifically for that purpose and usually have a team of professionals dedicated to negotiating the best deals possible. If the negotiator has lots of experience and you provide them with proof of your inability to pay in full, they may even be able to get your outstanding balance decreased more significantly. However, before you try this, make sure you understand the potential consequences associated with hiring professional help.
Firstly, not all of these organizations are on the up and up or interested in your well being. Some may charge you an unaffordable amount for their services, which they’ll of course only tell you about once the deal is done and there’s no turning back. Others may not even be real organizations at all. Scam artists can sense your desperation and will set up fake companies with the intent of stealing your money and financial information.
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Even if the company can be proven as lawful and not predatory, they’re still going to charge you a flat fee once the settlement is finished, so be sure to ask about any potential fees before you sign anything. If you can’t afford both their rate and your settlement lump sum, this may not be the right choice for you.
Interested in Debt Relief Help?
If you’re considering a debt settlement in Charlottetown or are interested in another form of debt relief, Loans Canada can help. We can match you with the right service and the best provider.
