Using a debt settlement company

A debt settlement company negotiates with your creditors and offers them an amount of money to eliminate your debt. This amount is often lower than your total debt. If your creditors agree to the offer, you must pay your debt settlement company. The debt settlement company will then pay your creditors.

Some credit counselling agencies may also offer this service.

There are many different names for debt settlement, including:

Creditors don't have to negotiate with a debt settlement company. Your creditors may not agree to lower the amount of your debt or work with the debt settlement company. Be aware that a debt settlement company may still charge you fees even if your creditors refuse the offer. They’re usually for-profit businesses that make money from the fees they charge their clients.

Debt settlement companies don't always provide credit counselling and money management advice. 

A debt settlement company may offer to handle all communications with your creditors. They may ask you to sign a power of attorney to give them this ability. Before you sign, make sure the debt settlement company agrees to inform you of all payments they make to your creditors. This allows you to confirm that your payments are being received.

Be cautious when looking for help

Some companies offering help to pay off debt or repair credit are misleading consumers.

What you need to know when getting help to pay off debt or repair your credit.

What to watch out for when considering a debt settlement company

Be aware that some debt settlement companies may do the following.

High-pressure sales

Some debt settlement companies offer their services through aggressive telemarketing calls. High-pressure sales practices create a difficult environment to make clear decisions. If you get a call, don't feel pressured to agree to something right away.

Unrealistic promises

Be aware that some debt settlement companies may make unrealistic promises about what they can provide. They may promote their services in a misleading way.

Debt settlement companies cannot:

Some companies also offer you a loan suggesting it will help repair your credit score. When you sign up for this type of loan, you may never actually receive any money. The company will tell you the loan amount will cover its services or programs.

You may end up making regular payments to the company to repay the loan. Be aware this type of loan usually has a high interest rate. This service doesn't help eliminate any of your other debts. You'll have to keep making your payments on any other debts you owe. You could be left with more debt and no change to your credit score.

High fees

You may have to pay advance fees or monthly fees. You'll likely have to pay the advance fees even if the company can't get your creditors to reduce your debt. Fees charged by debt settlement companies can be very high.

Delayed payments

Certain debt settlement companies intentionally delay making payments to your creditors. They do this hoping to get better results in negotiations to reduce your debts. This will hurt your credit score because it may seem like you're less able to repay your debts. Always ask for receipts for any payments they make. 

Before you sign up for debt settlement

Make sure you do the following before you sign up with a debt settlement company or agency.

Research the company’s reputation

Do a background check. Find out if there have been any serious or unresolved complaints about the company or agency. This includes late payments to creditors or false advertising.

Check for complaints made to:

Review the contract carefully

Take the time to review the contract and don’t agree to anything under pressure. Ask questions if you don't understand any of the terms and conditions. Make sure you keep a copy of the contract.

Filing a complaint about a debt settlement company

Provincial and territorial governments are responsible for regulating debt settlement companies and investigating consumer complaints.

Contact your provincial or territorial consumer affairs office.

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