Have you ever wanted to negotiate a debt settlement to save thousands of dollars? With the average consumer debt in Canada reaching over $71,000 in Q1 2019, Canadians are seeking to reduce their debt loads. In addition to traditional debt relief options such as credit counselling and debt consolidation, many Canadians are also considering debt settlement.
Depending on your financial status, debt settlement may be a viable solution. You can achieve debt settlement either by contacting a third-party credit counselling agency or on your own.
This article discusses:
- Settling debt on your own
- The process to do so
- Pros and cons of going with a company
Debt Settlement: The Basics
The basic idea behind any debt settlement program is to negotiate with credit card companies and pay them less than what you owe. In the simplest terms, creditors get less than the full amount you owe. Debt principal reduction is always the goal.
For example, a counsellor may be able to get the creditor to agree to accept $1,000 as payment in full, instead of the $5,000 that the debtor owes.
While this summarizes settlement, doing it alone and with a company entails different procedures and has differing success rates.
The most important thing is seeking help and starting somewhere so you can get out of debt.
DIY Debt Settlement as a Viable Option
When you choose the DIY approach, it puts the power back in your possession. You speak directly to your creditors and can save both time and money in the process. Are you unsure of how to accomplish this?
You negotiate credit card debt and possibly:
- Reduce your interest rate
- Lower the overall total by offering a partial payment
- See a better credit score over the long term
While it may be scary and challenging to achieve, creditors prefer receiving at least partial compensation for what you owe. If you come to your lenders with a reasonable plan and offer, they are more likely to agree. The chances increase if you offer a fair lump sum payment.
However, not everyone who attempts it is successful. It’s not impossible, but more difficult for an individual to accomplish. If you know your rights, have a plan, and budget in place, you may be able to sway them without involving a third party.
The Steps to Negotiate Your Debts
Follow the process below to negotiate a settlement.
Create a budget and determine what you can reasonably afford to pay
- Include all of your expenses, so you have an accurate assessment
- Analyze your budget to see if you can gather enough money for a lump sum offer
Document the circumstances around your financial problems and the related events
- Devise a story that details why you’re in debt and behind on making payments
- Provide copies of bills, statements, etc. that support your claim
Study your rights and identify what debt collectors can and cannot say/do to you
- A debt collector may use tactics to intimidate you
- Read up on the regulations the debt collection agencies must uphold
Call and verify that you’re speaking with someone with the power to execute a settlement offer
- Speak to the original creditor if the debt is not already with collections
Have a conversation with the debt collector and take notes
- Be aware of any violations they may perpetrate
- Ask a lot of questions and get clear on your agreement
- If they threaten to sue, ask when and if you will receive a notification from them
- Write down notes and ask for written documentation supporting your agreement
- If you cannot agree, end the conversation, call back later, and ask to speak to a decision-maker
- You cannot open any other credit accounts while on a plan
Review your settlement agreement thoroughly before you sign
- May sure all the payment terms and other stipulations are within the agreement documents
- See that there are no other stipulations that contradict or add to your agreement
Follow the payment plan
- Make the payments on time and regularly until the debt is gone
The Pros and Cons of Professional Debt Settlement
If you decide to go with an organization, there are things you should know before diving in. Anyone seeking to better their personal finances must consider the benefits and drawbacks of their options.
The Advantages
The Right Direction
Debt settlement has many benefits, but it is not the right solution for every debtor. Sometimes, credit counselling or debt consolidation is better. You might even benefit more from a consumer proposal or personal bankruptcy than from debt settlement. A professional can assess your situation thoroughly and make sure that you only enter debt settlement if that is the best option for you.
Expert Negotiation
Your creditors will always try to get the most money possible from you when you are negotiating a debt settlement. To make sure you get the most favourable terms, an expert debt negotiator is on your side. An experienced professional may get better settlement offers for their clients. A client may end up paying far less of the debt principal as a result. There are also lower monthly payments.
Payment Flexibility
Debt settlement is unique in that most creditors want only a lump sum from you to settle a debt. If you negotiate the terms yourself, you may be unsuccessful in getting them to agree to a payment plan.
The Drawbacks
- Your credit score will go down for six years
- Some organizations are predatory and can leave you further in debt
- If you negotiate a debt settlement and miss a payment, you may void the agreement
- Creditors may not agree to settle or negotiate
- You cannot settle student loans unless they are in or near default
Before You Try to Negotiate a Debt Settlement on Your Own
Before arranging a debt settlement, you should consult an expert to learn what your best options are. Learn about your choices and the best course of action to eliminate debt. There is no obligation to move forward. Sometimes, our clients qualify for plans that do not hurt their credit scores.
For a free consultation to see if your best option, fill out the debt relief form on this page.