Sometimes when people are in deep consumer debt, they frequently resort to drastic measures, such as bankruptcy. Unfortunately, this is often the case simply because they are not informed enough about the other solutions and options available to them. Keep in mind that in certain situations, people have so much debt that they must resort to bankruptcy as their only solution. If this is not the case for you then there are other options you must consider first.
This being said, it is extremely important to remember that you’ll want to choose the option that is both the best choice for you and that will affect your credit score the least. Bankruptcy is actually the most damaging debt solution to your credit score. Therefore it’s a smart choice to evaluate all the debt solutions available to you and how they will specifically affect your credit.
Of course not all debt solutions are created equally, and each comes with varying degrees of damage to your credit score. If bankruptcy has the most negative effect on your credit score, then on the other side would be credit counselling, with a far less damaging outcome to your credit score. But when credit counselling is quite enough to help you conquer your debts, there is debt settlement.
Put simply, the goal of a debt settlement program is to help you settle your debt for less than what you actually owe. This option is most desirable for those with a debt greater than $10,000 but not great enough to warrant using methods as extreme as a consumer proposal or bankruptcy. Enlisting the help of a professional is a good way to figure out whether or not debt settlement is your best option.
When deciding whether or not debt settlement is the best option for you, keep in mind that you’ll need to make one lump sum payment to your creditors. In general, a debt settlement involves you or your debt settlement company negotiating an offer that will allow you to settle your debts for less than what you owe. For example, if you owe $10,000, your creditor may accept a debt settlement offer that lets you off the hook if you pay $7,000 upfront. Installment payments aren’t typically an option; therefore it’s advantageous for you to start saving as soon as possible.
What you want is for your creditor to write off a high amount when settling your debt. Because this high write-off from your creditor is very important, it is always a good idea to have a professional debt settlement provider negotiate on your behalf, as opposed to doing it yourself. The debt settlement company that you choose to work with will analyze your situation and should provide an offer that satisfies your creditors and yourself.
If you are or have had trouble making debt payments, then you are very likely aware of the negative impact late payments can have on your finances and debt total. While a debt settlement will not clear your credit report of late payments, it will help prevent you from receiving any more late or missed payments on the debts that you currently have.
While a debt settlement will lower your credit score, it’s not as bad as not making any payments at all. In fact, letting it go defaulting on your loan usually has more severe effects on your credit than a debt settlement. Moreover, in the long run, your credit score will greatly benefit from debt settlement.
It’s important that you look at debt settlement as a long-term solution that will help you become debt-free now, but that will also allow you to work towards a better financial future.
The only way you’ll truly know whether debt settlement is right for you is if you sit down with a specialist to discuss your financial situation and the options available to you. Check out our online application today or speak with one of our debt specialists.
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Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.
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