What Is A Debt Management Or Debt Settlement Service

2014-10-06   minute read

There are a number of companies that advertise ‘Debt Management Services’. In essence, these companies are suggesting they can negotiate a settlement with your various unsecured creditors on your behalf without going through a formal Consumer Proposal process. Each of these companies tends to operate differently, but generally their programs involve some or all of the following:

  1. You stop making payments to your unsecured creditors.
  2. You pay a fee to the debt management company (either upfront or monthly).
  3. Either you or the debt management company will accumulate a lump sum and then try to settle with your creditors - if the debt management company is accumulating the lump sum it will come from payments made by you to that company.
Two people crunching numbers on a laptop with a notebook on the table

Buyer Beware

If you are considering enlisting the services of a debt management company, you should be aware that generally this industry is not well-regulated or licensed, although some provinces are now passing legislation to regulate it.

In addition, these companies have no way of preventing creditors from continuing collection action against you until a settlement is made. Unlike with a bankruptcy or a Consumer Proposal, there is no stay of proceedings, so you may continue getting phone calls or even have your wages garnished.

Debt Management Company Checklist

If you are considering using the services of the debt management company, please ensure that:

You have considered all your options

If you are unsure as to what other options exist or whether a debt management company is the right choice for your individual situation, speak with a licensed professional. MNP Ltd. actually offers free, no obligation to discuss all of your options.

You understand the fees and costs associated with the debt management process.

As mentioned above, the debt management industry is largely unregulated. Be wary of organizations that are charging what seems like a hefty fee on top of the debt you already owe.

You understand what will happen while the debt management company (or you) accumulates the funds to try to settle with creditors.

The debt management company will attempt to negotiate lower payments, lower interest and / or a longer time period to pay back your debt – however none of these actions are guaranteed.

You have checked the bona fides of the debt management company you are contemplating using.

Start by looking at online reviews of the company you are considering, including the Better Business Bureau (BBB). If there is an official registry within your province, check to see if the debt management company is aligned with them.

You understand the implications on your credit rating of using such a company.

Participating in a debt management plan may make it more difficult for you to obtain new credit in the future – especially if you’re unable to keep up with the negotiated repayment terms. If you’d like to learn more about debt management companies and all of the debt relief options available to you, please contact your nearest MNP Ltd. office to make an appointment.

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