Debt Settlement Companies: The good, the bad and the ugly

Q: I heard an ad for a company. They said that they can settle my debt for much less than what I owe and I can get out of debt faster. When I called them, they also said that after I’m done, I can easily rebuild my credit rating. I’m considering going ahead with this but it just sounds too good to be true; is it?

A. When you’re struggling to pay your bills and you hear an ad like this, it may seem like the light at the end of the tunnel just got that much brighter. However, in the case of debt settlement, there are a number of factors and costs to consider before choosing this course of action. It’s important to understand that your creditors will not accept less than what you owe without carefully examining your overall financial situation. They want to make sure that you are offering as much as you can, regardless of what a debt settlement company may claim.

Other factors to consider are:

• If your offer is declined, will you be at risk of having your creditors initiate legal action against you by garnishing your wages or seizing your assets
• What may happen if only some of your creditors accept the settlement offer and others don’t
• How long your credit rating will be negatively impacted because debt settlement only repays a portion of what you owe. The rest is left unpaid.
• Fees charged by the debt settlement company – many are charged up front
• If the company is licensed in your province and if they have a good service record

Many of these companies will ask you to make monthly payments to them and once they have enough money from you, they will try to settle your debts. There’s no guarantee that they’ll be successful or if they’ll return all of your money if they aren’t. They also don’t tell you that during this time, you will continue to receive collection calls because you will be falling further behind.

Before deciding what to do, I strongly encourage you to do your homework and examine all of your options to resolve your financial situation. If you are unsure how to proceed get help from a reputable and accredited organization. What you may discover is that the long term impact of your choice today is much too steep a price to pay.