Financial stability is crucial in our day-to-day lives.
In this article, we delve into the concept of Consolidating with Debt Settlement and how it can impact your financial standing.
Understanding Debt Settlement
Before the last quarter of 2010, debt settlement in Canada was typically carried out in a singular way. If one was struggling with credit card debt and suddenly came into a substantial amount of money, they could propose a settlement to their creditors. The agreement involved paying less than the full balance if they would accept a lump sum payment.
However, this approach was not always successful unless done through a credit counselling organization, as they understood what creditors would accept. Since most individuals didn’t have the means to pay lump-sum settlements, this was not a practical option for many.
American Debt Settlement Services
In October of 2010, a new model for settling credit card debt was introduced in Canada. The advertised method claimed to be a solution for anyone facing debt. The idea was to stop all payments to creditors, save money, and then have a professional negotiator settle the debts.
The reality was that this method was largely unsuccessful. American debt settlement companies spent millions on advertising, but the results were far from satisfactory. Following numerous complaints from disgruntled consumers and a thorough investigation, the US government enacted legislation in October 2010. The law aimed to prevent for-profit US debt settlement companies from charging fees for debt settlement services before rendering the service.
Interest Rates and Debt Settlement
Once a creditor agrees to a settlement amount and you pay it by their settlement expiry date, no more interest or fees are charged. The debt is then legally paid in full (as long as you have this in writing). Debt settlements can range from less than 20% to over 80%. It all depends on the situation.
Advantages of Debt Settlement
- Potentially repay far less than you owe and quickly eliminate your debts.
- Your credit can be completely repaired 2 years after your settlement is complete if you work with a non-profit organization.
Disadvantages of Debt Settlement
- Need to have a lump sum of money available to settle.
- For-profit debt settlement services have less than a 10% success rate and 65% of their clients do not receive any service in return for the fees that they pay according a US Federal Trade Commission study.
- Your credit will be negatively impacted by a debt settlement. Your credit will take 6 – 7 years to recover if you work with a for-profit debt settlement company.
Conclusion
Consolidating with Debt Settlement can be a viable option for those with a lump sum of money. However, it’s essential to work with a reputable non-profit organization to avoid falling into the traps of for-profit debt settlement companies. Always remember, proper financial management is crucial to maintaining financial health.
