Which Debt Solution is Right for Me?

Consumer Proposal, Debt Management or Debt Settlement, Which is Right for Me?

With consumer debt at an all-time high, the number of companies offering credit counselling or debt settlement services is multiplying at an alarming rate. Many of these companies have large advertising budgets and slick websites designed to play on the fears of stressed-out consumers who need debt relief.

Let’s take a closer look at the programs they offer.

Debt Settlement Companies

Debt Settlement Companies claim to reduce your debt by offering your unsecured creditors a percentage of the debt you owe your creditors. With a debt settlement agreement, you make monthly payments over a set number of years directly to the debt settlement company. In some cases, you are required to save the money in your bank account. Once you have enough money saved, they start negotiating settlements on your behalf.

The trouble with these programs is that you receive little if any service until you have saved up enough money to offer settlements. Your creditors keep charging late fees and interest and your debts continue to grow. Most creditors will continue to collect their debts and may take court action against you to recover the debts. Even though you are paying a monthly service fee to the debt settlement company, it is unlikely that they will provide you with protection from your creditors’ collection activities.

The government has questioned the success rate of these programs in Canada and the U.S. and there have been several consumer warnings. One should also be cautious if a company recommends obtaining a loan to use for debt settlement purposes – these loans often come with extremely high fees and interest rates that negate the benefit of the settlement. Read more about consolidation loans & bad credit here.

Credit Counselling Companies

Credit Counselling Companies offer a couple of different programs; debt management plans (“DMP“) or debt repayment plans (“DRP“). These programs will require you to make a monthly payment to the Credit Counselling Company, for a maximum of 5 years until your debts are paid in full. These programs require that you repay 100% of the original principal balance.

Your creditors will be asked to stop or reduce the interest they are charging you, depending on what arrangements they have in place with the credit counselling company. Some credit counselling companies also offer debt settlement services, in this program you would make a lump sum payment to your creditors, to settle your debts.

Credit counselling companies make their money by charging administration fees and payments they receive from your creditors, for settling the debt or managing the debt management plan.

Consumer Proposal

Only a Licensed Insolvency Trustee can help you file a Consumer Proposal. A consumer proposal is the only debt solution option, other than personal bankruptcy, that provides you with legal protection from your creditors.

A consumer proposal is typically made through monthly payments to your unsecured creditors; however, lump-sum consumer proposals are also possible. With a consumer proposal, you usually pay pennies on the dollar. If the majority of your unsecured creditors accept the consumer proposal, it is legally binding on all unsecured creditors. There is no interest or late fees charged by creditors, and your consumer proposal is complete once you have paid the agreed-upon amount.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.