Qualifying for Debt Settlement

Qualifying for Debt Settlement

Written by Caitlin Wood
Last Updated June 8, 2021

When you’re dealing with debt, it’s very important to carefully weigh the pros and cons of different debt-relief options, including a debt settlement. A helpful way to clarify certain issues in your mind is to ask yourself a few questions. Here are some questions you should consider if you want to settle your debts:

  • How willing am I to damage my credit rating in order to get out of debt?
  • How long am I willing to remain in a debt settlement program until my debt is paid off?
  • Just how much am I willing to spend on the program’s fees?

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 whether or not you qualify.

debt management options

What is a Debt Settlement?

In Canada, there are many debt relief options. Along with debt settlement, there is also credit counselling, debt consolidation, debt management, and consumer proposal, just to name a few. Debt settlement is an option for people who find themselves in a very particular financial situation.

Put simply, 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.

Qualifying for Debt Settlement

Although there is an approximate 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.

Income

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. Generally speaking, if you are not able to make at least minimum payments on your debt then usually at that point you would file for bankruptcy.

Savings

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, your debt settlement company may be able to reduce your debts to $8,000 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.

Creditors

The outcome of your settlement may be different depending on the specific creditor you work with along 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.

Be sure to ask these questions before working with a debt settlement company.

Finding Out if You Qualify

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 fill out the debt relief form and find out which options are best for you.


Rating of 4/5 based on 4 votes.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. 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. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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