The average Canadian’s consumer debt sits just below thirty thousand dollars. While some can pay it over time, others struggle to keep up with the monthly payments. Most people are familiar with traditional debt-relief options, such as debt consolidation and credit counselling, but many borrowers are now also considering an alternate approach to settle debt in Canada: debt settlement.
Find out how to settle debt in Canada on your own.
What Is A Debt Settlement?
The simple idea behind debt settlement is to negotiate with your creditors to have your debts paid in full but for less than what you owe in actuality. To give an example, you could negotiate with a specific creditor to pay them back $1000 instead of $5000 and they would in return mark your debts as paid back in full.
Can You Settle Debt In Canada On Your Own?
There are two paths you can take when it comes to debt settlement: the professional way and the do-it-yourself way. Either one can work, but it’s important to first assess your current situation and then decide which one will be more beneficial to you right now and in the long run. As a general rule, we always recommend that you consult an expert before you decide to negotiate with your creditors on your own.
For example, a credit counsellor may be able to help you come up with a plan to consolidate your debts. If you have a good credit score, you could qualify for a personal loan with low rates and low monthly payments.
How To Settle Debt In Canada On Your Own
Should you decide to take the DIY path, here are the steps you should follow:
1. Know What Your Creditor’s Collections Cycle Looks Like
Most creditors have their own ways of handling past-due or delinquent accounts, but typically a past-due account goes through a cycle that looks something like this:
- Charge off at around 180 days past due
- Sent to a collections agency
- Sent to a collections attorney
Understanding how your creditor’s collections cycle works will allow you to track where your past-due accounts are within your creditor’s system. For example, if your debt has already been sold to a collection agency then you’ll likely need to call the collection agency rather than your creditor itself.
2. Set A Schedule
Settling your debts as quickly as possible should be your number one goal, the longer you wait, the more uncooperative your creditors could become. You should aim to have the process completed within a year and at the very longest, two years.
3. Figure Out How Much You Can Offer
When you settle debt, you still need to pay a percentage of it back. Generally, debt settlements have resulted in a debt reduction of 30% to 70%. Using this percentage, you should assess your finances to see how much you can offer. For example, if you have a debt of $5,000, you should try to scrounge up $1,500(30%) to $3,500 (70%) to settle your debt.
How To Save Up For A Debt Settlement?
Budgeting and cutting back are two great options to help you save up money for a debt settlement, but depending on how much you owe, they may not be enough. You may need to look into selling any assets that you might own that aren’t being used or that aren’t absolutely necessary. This includes things like cars, motorcycles, boats, recreational vehicles, collectables and antiques.
4. Sideline Your Emotions
It may be difficult but if you’re going to negotiate your own debt settlement then you need to keep your emotions out of it. Treat it like a business deal or pretend that it’s not your debt, do whatever it takes to sideline your emotions.
5. Know Your Story
A good way to help you negotiate your case is by writing down your reasons for defaulting. Having a script will help you keep the conversation with your creditor or debt collection agency on track.
Debt Settlement Negotiating Tips
You can also use the following to help your case:
- If you plan on filing for bankruptcy or a consumer proposal, let your creditor know. Your creditor would rather get some of his money now than deal with a consumer proposal or worse; get no money at all.
- If you have other debts that you’d like to settle, let your creditor know you’ve come by some cash and would like to settle one of your accounts. Letting your creditor know you have multiple debt accounts you’d like to settle, will make them more inclined to accept your offer.
Learn more on how to qualify for a debt settlement.
6. Manage The Collection Calls
Depending on how many past-due accounts you have you may be receiving dozens of collection calls a day. Don’t let these calls derail your plan; use the technology available to you to deal with them. Have these calls transferred to another line or have them go straight to voice mail, this way you can listen to the messages on your own time and return the calls where you see fit.
Moreover, it’s important you understand your rights. Your creditor or debt collection agency cannot legally threaten you or harass you. Knowing your rights will allow you to control the conversation and put a stop to any injustice towards you.
Click here to learn how to negotiate with debt collectors.
7. Get The Settlement In Writing
If the negotiation is a success, be sure to get the agreement in writing, no matter how small or large the deal or settlement is. You can start by sending an email to your creditor to confirm the details of the agreement. This can include:
- Your debt settlement amount
- Payment terms
- Payment due date
- Payment method
Your creditor should reply back with a confirmation plus any paperwork necessary to complete the debt settlement process.
Find out how a debt settlement will affect your credit.
8. Make Your Payment
Once you’ve got the agreement in writing, you can send your payment (lump sum payment) or payments (if you’ve revised your payment plan with new terms. If you’ve revised a new payment plan, it’s important that you don’t default on any of the payments as this can make the agreement null and void. Moreover, your creditor can come after you for the full amount plus any fees.
Settle Debt In Canada On Your Own: Advantages And Disadvantages
There are some perks to negotiating with creditors on your own and settling your debt the DIY way. But there are also a handful of drawbacks that you should consider as well before taking this approach.
Settle Debt In Canada On Your Own: Advantages
- Avoid fees. By tackling your debt settlement on your own, you can avoid the fees that may come with paying a debt settlement service. These companies charge anywhere from 15% to 25% of the settled amount, on average. For instance, if you’re settling your debt for $10,000, you could be slapped with fees as much as $2,500 or more.
- Retain complete control. While professional debt settlement services have the experience and skill-set needed to ensure the best possible outcome, they ultimately take the reins. If you prefer to take a more hands-on approach and want more say in the process, going the DIY route will give you complete control.
- Repay your debt faster. Since you’re taking over the debt settlement process and dealing with each creditor on your own, you can set the timeline for how the debts are settled and potentially pay off your debt faster.
Settle Debt In Canada On Your Own: Disadvantages
- Possible unfavourable settlement. Debt settlement typically involves some negotiating with creditors. You’ll need solid negotiating skills to get what you want. If you don’t, you could wind up with a less favourable settlement than what you might get with some professional help.
- Total responsibility. If something doesn’t go the way you had planned during the settlement process, you have no one to fall back on. A DIY approach means you’ll assume total responsibility and won’t have any expert guidance supporting you and working on your behalf.
- Significant time commitment. If you tackle this process on your own, you’ll need to negotiate with each creditor individually, which will take a lot of time and effort.
The Pros Of Professional Debt Settlement
Although debt settlement does have many great benefits, it’s not the only solution available to those in need of debt relief. A professional will assess your specific situation and do their best to pick the best option, be it debt settlement, or any other of the many options including:
- Debt consolidation
- Credit counselling or credit rehab
- Consumer proposal
- Personal bankruptcy
When you’re negotiating a debt settlement, creditors will generally attempt to get as much money out of you as possible. Without the help of an expert debt negotiator, you may not get the most beneficial terms to settle your debts. In other words, you may end up paying more than you would have needed to settle your debt. You could negotiate with creditors on your own, but, it is safe to say that with an experienced professional you will get a better settlement offer and you will end up paying back less.
Check out what questions you should ask your debt collection agency.
Settle Debt In Canada On Your Own
If you’re currently looking into debt relief and wish to speak with a professional to discuss the many options available to you, including debt settlement, reach of the a credit counsellor. They’re specialized professionals who can help you understand all your debt options awho need help dealing with their debts.