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Ads for debt settlement companies sound great. Why not go for it?

Risks Ahead

Q: I keep hearing and seeing ads from companies that claim to be able to settle your debts for a lot less than what you owe. I’m up to date on my bills but if I can get out of debt for less than half of what I owe and my creditors will accept this plan, what’s to lose?

A. We’ve received a lot of calls this year from people just like you asking the same types of questions. Is this legitimate? Will my creditors go along with this even if I am up to date on my bills? What will happen to my credit? Whether you are struggling financially or keeping up with your payments, when you hear ads like these it’s very tempting to see if this might work for you. While talk of debt settlement plans like this are relatively new to Canada, this has been going on in the states for many years. However, since the U.S. government introduced new legislation to crack down on the debt settlement industry, a number of American debt settlement companies have begun promoting this service to Canadians.

Buyer beware” are words to follow before engaging the services of a company to negotiate the settlement of your debts. Contrary to what you may have heard, when you settle your debts it has a negative impact on your credit rating which will take years to rebuild. You should be cautious if a company is only interested in settling your debts without knowing all of your circumstances. Keep in mind that creditors will not agree to your settlement offer if you have the ability to keep up with your payments. Understanding the pros and cons of different debt solutions and basing your decision on facts and not fiction will help you determine what’s right for you.

Finally, check out the company you are looking to work with carefully. Here are some points to consider:

  • Find out for yourself if the company is licensed in your province and has a good service record. Calling your provincial consumer protection agency or the Better Business Bureau would be a good place to start. The BBB recently issued a press release warning consumers about two debt settlement companies.
  • Determine the qualifications and experience of the company and its representatives. Poor advice may put you at risk of having your creditors take action against you.
  • What are the fees charged by the company? Are the majority of the fees charged upfront or after they have delivered on their promises?
  • What happens if the company is unsuccessful? Will you get your money back, or with the debt settlement company walk away with the many months of fees you paid them?

Do your homework and take your time before making a decision. What you may discover is that the long term impact of your choice today is a much greater price than you wish to pay.

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