Qualifying For Debt Settlement

Qualifying For Debt Settlement

Written by Caitlin Wood
Last Updated November 24, 2022

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. 

Negotiating Debt Settlement on Your OwnLearn More
How Will Debt Settlement Affect Your CreditLearn More
Questions To Ask A Debt Settlement CompanyLearn More

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?

Your debt settlement offer will depend on how much you owe, your payment history, and your creditors. This is why it’s important to work with a professional when settling your debt. A credit counsellor will know what to offer based on their past experience and will be able to negotiate on your behalf. 

Is it better to settle a debt or pay it in full?

Fulling any debt obligations you have in full is always the best option. Even if your account is past due or in collections, you have the option of paying it off in full. Debt settlement or any best relief solution can be a good option when you cannot fulfill your payment obligations.

When is debt settlement the right choice?

Debt settlement is the right choice when you cannot keep up with your payments, you have more than $10,000 worth of debt, and you’ve spoken to a professional who has advised that it is a viable option for you. 

Bottom Line

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.

Rating of 4/5 based on 7 votes.

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.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Save With Loans Canada

Special Offers

Borrow $500-$50,000

Borrow $500-$50,000

Don’t pay until March with this offer from our partner, Fairstone.* Ends January 31st.

View Offer
Cashback & Bonus Offer

Cashback & Bonus Offer
Ends March 1st, 2023

New Offer! Get up to $2,000 cashback + a $50 bonus on signing up. Conditions apply.

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.

View Offer
Build Credit For $10/Month

Build Credit For $10/Month

With KOHO’s prepaid card you can build a better credit score for just $10/month.

View Offer
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.