Which Debt Settlement Option Lets You Rebuild Your Credit Faster?
When it comes to managing debt, finding a solution that allows for faster credit recovery is often a top priority. Not all debt settlement options are created equal and their impact on your credit score varies. In this article, we delve into the three most commonly used debt settlement programs in Canada: Informal Debt Settlement, Credit Counselling Plans, and Consumer Proposal. We aim to shed light on which debt settlement option lets you rebuild your credit faster.
Informal Debt Settlement: An Unregulated and Risky Approach
Informal debt settlement plans, often coordinated by unlicensed debt advisors or financial consultants, lack regulation and are frequently the riskiest choice. These types of debt relief options are often unsuccessful.
Note: Engaging with informal debt settlement plans is risky. Always verify the consultant’s credentials and remember, reputable insolvency trustees offer free consultations.
Banks generally frown upon informal debt settlement programs and typically refuse to participate in them.
Credit Counselling Plans: Consolidating Debts and Coordinating Payments
Credit counselling agencies offer a program known as a debt management plan (DMP). This program enables you to consolidate your debts and make a single monthly payment to the credit counselling agency.
However, it’s crucial to understand that a DMP doesn’t settle your debts. If you opt for a DMP, you’re obliged to repay your debts in full. While the program may reduce or freeze any new interest, the original debt must be paid in full over 48 to 60 months.
If you’re capable of repaying all your debts, credit counselling could be a viable option. However, bear in mind that your credit report will still be adversely affected. DMPs are listed as R7 on your credit report and this remains for three years.
Consumer Proposal: Official Debt Settlement via a Licensed Insolvency Trustee
A consumer proposal is a legal process where you repay a portion of what you owe over a maximum of five years. Typically, consumer proposals allow you to settle your debts for about one-third of what you owe, resulting in a much lower monthly payment than other debt settlement programs. This is just one of the many benefits of a consumer proposal over most other programs.
However, remember to deal directly with a licensed trustee and not a debt consultant who might take your money and refer you elsewhere.
When considering your debt relief options, the primary goal should be to get out of debt at the lowest cost. For some individuals, filing bankruptcy may be the best route, especially if you have no assets and a lower income.
Choosing the Best Debt Settlement Option: Focusing on the Future
In making your decision, it’s critical to focus on the future rather than the past, deciding where you want to be, not where you’ve been, and choosing the best way to get there.
This is where a debt assessment with a Licensed Insolvency Trustee can be beneficial. They can help you review all these options based on your specific debts, your income, and your priorities.
In conclusion, the journey to becoming debt-free isn’t straightforward, and the path can often be confusing. However, by understanding the different debt settlement options available, you’re one step closer to choosing the one that best suits your financial situation and allows you to rebuild your credit faster.