In Canada, there are many debt relief options. Along with debt settlement, there is also credit counselling, debt consolidation, debt management, and consumer proposals, just to name a few. While consumer proposals and bankruptcy are more extreme solutions to debt relief, a debt settlement is typically for those who have mild debt, typically around $10,000.
If you’ve been considering debt settlement because you’re tired of being harassed by collection agencies or because you simply don’t have the means to pay off your debts in full, it’s important that you first determine if it’s the right solution for you.
What Is A Debt Settlement?
Debt settlement programs are designed for those whose debt is so deep that they are no longer suitable candidates for debt consolidation or credit counselling. Moreover, your debt is not serious enough to pursue more severe options such as a consumer proposal or filing for bankruptcy.
Generally speaking, debt settlement is best suited for those who have at least $10,000 in unsecured consumer debt.
How To Qualify For A Debt Settlement?
Although there is no exact amount of debt that makes you eligible for a debt settlement, your total debt level does not exclusively decide whether a debt settlement is right for you. Your income, savings, and creditors will impact your ability to qualify for a debt settlement as well.
If you’re unable to make minimum payments on your current debts, then a debt settlement is not for you.
A debt settlement can take up to 2 years before your debt settlement company and creditor reach an agreement. During that time, you should have enough income to at least make the minimum payments on your debt.
While your debt settlement company may advise you to stop making payments as a negotiation tactic, your income should be high enough to at least make the minimum payments on your other debts in order to avoid or reduce the negative impact it may have on your credit.
The amount of savings you have or capital from your liquid assets can help you qualify for a debt settlement. Most creditors like to settle the debt with a single lump-sum payment rather than a new payment plan.
For example, if you have 15,000 thousand dollars in debt with a creditor and you have $8,000 in savings or liquid assets, your debt settlement company may be able to negotiate your debts down to $8,000 or less if you make the payment upfront.
As such, if you have enough savings or liquid assets, you can have your debts settled for less than you owe.
The outcome of your settlement may be different depending on the specific creditor you work with and your history with the creditor. Chances are if you’ve been a loyal and long-standing borrower with a good credit history, your creditor may be more inclined to work with you. However, each creditor you work with has the right to reject any offer you make, if he so chooses.
Can I Qualify For A Debt Settlement On My Own?
Yes, you can qualify for a debt settlement without enlisting the help of a debt settlement company. However, whether you’re able to reach a settlement with your creditors on your own depends on your ability to negotiate and demonstrate why your debt settlement offer makes sense.
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What Types Of Debts Qualify For Debt Settlement?
The types of debt you can settle through a debt settlement program are unsecured debts such as:
- Credit card debt, including retail credit card debt
- Consumer debts like personal loans, lines of credit, payday loans, etc
- Non-government student loans
- Utility and cellphone bills
- Medical bills
Generally, secured debts like mortgages and car loans are not included in a debt settlement, however, in some cases, car loans may be accepted.
Questions You Should Ask Before Enrolling In A Debt Settlement Program?
Before choosing to enroll in a debt settlement program, be sure to ask yourself these questions:
- Are you eligible for a debt settlement or do you require a more extreme debt relief option?
- How much will it cost to enter a debt settlement program?
- How willing are you to damage your credit rating in order to get out of debt?
- How long will your debt settlement program last?
Debt Settlement FAQs
What is a good debt settlement offer?
Is it better to settle a debt or pay it in full?
When is debt settlement the right choice?
All this being said, there is only one way you will know if you are eligible for a debt settlement program: it is as simple as contacting a professional for a free consultation. From there you will have a meeting, discuss your debt situation, and find out which options are best for you.