Consumer Alert: What you need to know when getting help to pay off debt or repair your credit

From Financial Consumer Agency of Canada

The Financial Consumer Agency of Canada is warning consumers to be cautious when looking for a company to help them pay off their debt or repair their credit.

If you can no longer keep up with your debt payments and are thinking about getting help to pay them off, remember:

Companies or agencies can’t guarantee they will solve your debt problems

Some companies or agencies may claim they can solve your debt problems quickly. They say they can negotiate a deal with the companies you owe money to so that you will only have to pay back a fraction of your debt. You may still need to pay fees even if your creditors refuse to negotiate or make a deal to settle your debt. You could end up in even more debt than you were in before.

Companies or agencies can’t quickly and easily fix your credit score

Some companies or agencies may claim that they can quickly and easily fix your credit score. It’s impossible to change or erase information that’s part of your credit history, unless information is inaccurate. Improving your credit score will take time. You have to show your creditors that your habits have improved and that you are paying back your debt on time.

Some companies may also offer you a loan suggesting it will help repair your credit score. The company may claim that making timely payments on this loan will repair your credit. When you sign up for this type of loan, you may never actually receive any money because the company will tell you the loan amount will cover its services or programs. Instead, you make regular payments to the company to repay the loan.

Be aware this type of loan usually has a high interest rate. This service does not help eliminate any of your other debts. You are required to keep making your payments on any other debts you owe. You may only be left with more debt and no change to your credit score.

Companies should not encourage you to take out a high-interest loan to pay off your debts

Some companies or agencies may encourage you to take out a high-interest loan to pay off your debts until they can negotiate a better deal with your creditors or settle your debts using another debt repayment option such as a consumer proposal. Be aware that some companies make money from fees, set-up costs and interest. You may still be carrying debt after the process is over.

If the company claims that they will file a consumer proposal on your behalf, be aware that only a qualified licensed insolvency trustee can help you with a consumer proposal or bankruptcy. Their advice on these two options is typically free. Licensed insolvency trustees are licensed by the federal government’s Office of the Superintendent of Bankruptcy.

It’s illegal for the company to claim that they can manage your consumer proposal or bankruptcy if they do not employ a licensed insolvency trustee.

Companies or agencies may misrepresent services they offer as being part of a government program

If you’re not sure a company is part of a government program, contact the government department or agency that is responsible for the program. Ask them to confirm that the company’s representation is genuine.

Before you sign up for any debt repayment program, we recommend that you do the following:

  • Get advice from different reputable sources such as a financial advisor, an accredited credit counsellor or a licensed insolvency trustee.
  • Ask questions, compare your options and make sure you understand what you are getting into.
  • When seeking information on insolvency options, ask the question “Are you a licensed insolvency trustee?” Only a licensed insolvency trustee can provide access to options such as consumer proposals and bankruptcies.
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