Learn how debt settlement companies work

How do I get out of an agreement I signed with a debt settlement company or a credit counsellor?
This question has an answer and 5 steps

Learn how debt settlement companies work

Debt settlement companies can give you the same services as a non-profit credit counsellor. But they are for-profit businesses. This means they make a profit from helping you. There are other differences that are important.

When you use debt settlement companies, there are some extra risks. For example, they may:

  • not tell all your creditors about your repayment, so your creditors may keep calling you
  • pay one bill at a time, so creditors may sue you to try to collect their money
  • represent both you and your creditor, which is a conflict of interest

Debt repayment plans

Both non-profit counsellors and debt settlement companies can set up a debt repayment plan for you, and negotiate with your creditors. They may be able to get your creditors to agree to:

  • accept less money as full payment for their bills
  • lower the interest rate you’re paying
  • give you more time to repay your debt

A debt repayment account is set up that you pay into each month.

A non-profit counsellor will usually pay off a portion of each debt each month until the agreed amount is paid off. It is better to have a plan that takes account of all your bills.

Often debt settlement companies will pay one bill at a time, without contacting all of your creditors. This means that you will still have creditors calling you about your debt.

Make sure you understand how your repayment plan works before signing any agreement. For example, you should know whether your bills are being paid off one-by-one, or whether part of each bill is being paid each month.

You should also talk to your creditors to make sure they know you are entering a debt repayment plan. But, you should be careful. Many companies will tell you not to contact your creditors.

You also need to know whether all your creditors will accept the repayment plan. If your creditors don’t like your debt repayment plan or if the debt settlement business doesn’t contact them, they may sue you for the money.

Many debt settlement companies advertise that they can “get rid of” your debts. However, this is not a guarantee.

Conflict of interest

Sometimes debt settlement companies also act for creditors. This means that there may be a conflict of interest because they get money from you and the people you owe money to by collecting for the same bill. They may not be thinking about what is best for you.

Financial counselling

Debt settlement companies often focus on arranging a debt settlement plan because this is how they make money. They may not offer financial advice that will help you keep out of debt in the future.

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Office of the Superintendent of Bankruptcy Canada
Reviewed: March 24, 2017

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