Debt Settlement: What Is It, And How To Go About It?

If you have past due debts, you may be looking for solutions to pay them off quickly to avoid a creditor lawsuit. It is recommended to pay off collectors in total, but you can also consider debt settlement. For the unversed, the creditor has agreed to accept less than what is owed. You can work out a settlement with creditors yourself or work with a company that offers debt relief or settlement services. 

Debt settlement could be good or bad for you. Here are some important aspects associated with debt settlement.

  • If you weren’t aware of that, your credit score matters because they determine how easily you will be able to get approved for new lines of credit in future in case you need one. A credit score also influences the interest rates at which you will get the credit approved. When you pay your debt in full, it sends a more positive signal to lenders than having your debt listed as settled. Debt settlement can adversely affect your credit score, and banks may list you as a defaulter. 
  • Late payments status shows on your credit report for up to 7 years although their impact on the credit score fades over time. If you choose debt settlement, it could add to the negative impact. 

Note: Before choosing a debt settlement route, remember you need to have cash on hand to settle with. It is because this plan requires you to make a lump-sum payment to the bank or financial institution you borrowed from. 

When to get help with your debt?

After reading the risks associated with debt settlement, you conclude that debt settlement is the only option left, then considering Canada debt settlement program might be a good idea. Letting companies that offer debt settlement or relief services in the picture might give you an edge when talking to the bank’s representative. These companies are experienced and have certified counsellors who will talk to the bank on your behalf and try to reach a settlement that works in your favour. If you are not equipped with the right amount of knowledge on negotiating debt yourself, working with a debt relief company is a sound financial plan. 

Along with the same, they can look at your debts, income, and spending to help you create a realistic budget plan. Your credit counsellor might be able to save you money if your credit counsellor can negotiate the interest rates on your behalf. 

Sometimes by looking at the amount you need to pay off, it is easy to feel overwhelmed and if you are feeling anything like that, here are some things NOT to do: 

  • Don’t pay a secured debt late to pay an unsecured one. This way, you could prevent losing the collateral that secures your debt.
  • You might be in a hurry to pay off your loan, but don’t borrow against your home. You are putting your home at risk of foreclosure by doing this.
  • Don’t withdraw money from your retirement savings to repay unsecured debt. And, think twice about borrowing money from your workplace retirement account. 
  • Your creditor will make a counteroffer but don’t rush into agreeing to a number you can’t afford to pay.
  • Lastly, don’t make decisions based on which collectors are pressuring you the most. This may lead you to commit to actions that aren’t in your best interest. 

When you find yourself in a significant debt hole, it is a big decision to decide whether to pay it off or go for debt settlement. A credit counsellor can explain the range of options from debt settlement to debt consolidation. By going through each option carefully, the best choice will become more apparent.

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