A few days ago we outlined all the possible resources that can help you deal with your debt. And while they were all good venues to explore, they all also have their own elements that you need to beware of. Today we’ll look at debt settlement companies, one of the best solution for dealing with debt as these companies represent only the consumer. However, this industry is also fairly new and not quite regulated as it should be, and so consumers can also very easily fall into the trap of using the wrong one.
So how do you know which one is the wrong one? There are two ways to tell.
The first is if they are not licensed. Not just anyone can start up a debt settlement company. They must be licensed by the Ministry of Consumer Services, the same ministry that will also give them a license to do their work with highly indebted consumers. But did you know that the majority of these settlement companies don’t have a license? And that many of them don’t even know that a license needed to be obtained? The Ministry so far doesn’t have a great action plan to deal with this, and so it’s left to the consumer to ensure that any company they’re dealing with does have a proper license.
But unfortunately, that’s only one way consumers can get into trouble with debt settlement. The other is that they may simply not have the money to pay off their debt.
Debt settlement companies work by giving creditors a large sum of money that’s put towards the debt. The company will work on behalf of the consumer and contact the creditor, asking them to waive fees or stop collecting interest on that debt. This will help the debt to stop accumulating, and will make it easier for the consumer to pay off their debt. However, not all companies work like this and that can mean trouble for the consumer.
Some companies will work out monthly payments for the consumer and collect those payments in an account that will eventually be used to pay the creditors. However, creditors aren’t likely going to wait for the accumulation of funds, and many debt settlement companies will charge a fee, with the accumulated amount only covering that fee and leaving the consumer still stuck with their debt in the end.
It’s for these reasons that consumers really need to do their research before signing on with any debt settlement company. Firstly they need to ensure that the company is licensed, and then they need to ensure that the company will take a large sum payment and use it to pay their creditors off. Fees should be minimal, if any, on the part of the consumer, and there should never be an account collecting funds that could be used to simply pay off the debt.
But it’s not just debt settlement companies that consumers need to be forewarned about. The other options we listed as those who could help you deal with your debt – bankruptcy trustees and credit counselling services – also have their own negatives and we’ll look at those of the trustees in tomorrow’s post.
