Beware the Quick Credit Fix: Debt Settlement Scams
Companies claiming to offer debt settlement programs have sprung up all across Canada in the last few years. You’ve likely heard one of their ads on the radio…and there’s a good chance you’ve been tempted by their claims. After all, who doesn’t want to save thousands of dollars on debt payments?
Before you jump in with both feet, however, you need to know just what you might be getting into.
Debt settlement programs generally work like this:
- You stop making all payments to your creditors.
- You begin making payments to a savings account instead.
- The debt settlement company takes their fees up front from that savings account.
- Once you’ve saved the amount you’ve agreed on with the debt settlement company, they begin negotiations with your creditors, offering each of them a lump sum payment to settle your debt.
The idea behind this method is that, if you stop paying them, your creditors will give up hope of collecting. Months or even years later, when the debt settlement company offers them a fraction of what they’re owed, those same creditors will jump at the chance to settle, because some money is better than none. Sounds good so far, right?
But here’s the problem (there are several, actually):
- Saving enough money can take months or even years.
- Most creditors don’t want to be ignored. During the time you’re trying to save money, there’s nothing to stop creditors from attempting to collect the full amount of what you owe them, either through collection agencies or legal action—or both.
- Also during that time, your creditors will continue to report on your lack of payments towards your debts to the credit bureau, and your credit rating will continue to plummet.
- Your creditors can flat-out refuse to work with the debt settlement company—and you have no way to force them to do so.
- If the debt settlement program fails for any reason, you’re out whatever fees you paid—there are no refunds and no way to get your money back.
- Debt settlement companies do not work to settle any amounts you may owe to Canada Revenue Agency.
- All of this can leave you in worse financial shape than you were in to begin with.
In short, there is no such thing as a quick credit fix. If you’re in over your head financially, the only way to improve your situation is through hard work, dedication, and time—and the only agreement that will be legally binding on your creditors is one such as a consumer proposal made with the help of a certified trustee.
The good news? You, your family, and your finances are worth the effort.
If you have any questions or you’d like to find out more about your options, call or email us today to schedule a free, no obligation consultation: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926
Credit Rebuilding Tips
- 5 Steps to Rebuilding Your Credit Rating
- What a Credit Counselling Firm Can Do for You—and What it Can’t Do.
- Beware the Quick Credit Fix
- Home Ownership During a Bankruptcy or Consumer Proposal