So you find yourself trapped in a vicious monthly cycle of borrowing from one credit card to pay another. Your minimum payments are exceeding your budget available and the collection agency’s phone calls are leaving you with sleepless nights. Plain and simple, your debt is crushing you.
The options available to Canadians to fix this type of situation today are to approach a debt settlement company who will negotiate your amounts owing lower. Or you could approach a bankruptcy trustee who will prepare a Consumer Proposal to make structured payment to those you owe over time. Finally, there is a simple debt consolidation in which a mortgage broker arranges a new loan secured against your home to pay out your debts owing.
Let’s look in more detail at the solution of debt settlement and examine the potential consequences of this choice.
Barrie Debt Settlement
Hank and Deborah approached a Barrie debt settlement company after seeing a television ad and requested an appointment. At their meeting, the couple was advised they would be required to pay a retainer fee in order to proceed and that a joint bank account would be set up to deposit money in monthly to make debt settlement payments. Then after providing the information of their debts owed, the company explained that they would be working to negotiate on the amounts owed down to as little as 20 cents on the dollar with their creditors. The Barrie debt settlement company also promised the collection agencies would cease phoning demanding payment and that through this process they would be able to improve their credit rating.
What our couple in Barrie was not told by this debt settlement company is that there was no guarantee that your creditors will agree to reduce your debts. In fact, they may not even agree to participate in debt negotiations. They could end up paying the retainer fee for nothing. The separate bank account where Hank and Deborah were depositing money each month was being pilfered in a “one for you, two for me” manner of an amount going to pay debts owed and an amount to pay the Barrie debt settlement company. Only when the joint account had enough money that they would be able to be paid would the company begin working on paying down a single debt.
What was worse is that after the first month the phone started ringing again. After some inquiry, Hank found out that the remainder of the debt owed on one of his credit cards was sold to another collection agency and the harassing calls began again. Then Deborah pulled her credit rating and found that the claim that her credit rating would improve was also false. In fact, the Barrie debt settlement company had advised them to stop making payments to their credit cards in order to improve the company’s negotiating position. The credit card then reported the unpaid debt to the credit rating agency causing damage to her credit score as well as additional late fees and interest.
Barrie Debt Consolidation
Hank and Deborah then approached their Barrie mortgage broker as they were suffering from the side effects of the story above. In reviewing their situation, the broker determined that a simple debt consolidation would benefit the couple and increase their cashflow by an extra $700 per month. He explained that because Hank and Deborah owned their home without a mortgage or “free and clear” of any debts, they would be eligible to place a small new mortgage against the property and access historically low interest rates with the ability to extend the debt payments over a longer period of time providing payment relief in their time of need. The broker also said that because of the new loan, their other debts would be paid off in full providing them with instant relief from any further negative implications. And what was the most pleasing to Hank and Deborah was when the broker stated that his pay cheque was coming from the bank they were placing the loan with not from them.
The True Home Equity Solution!
This Barrie mortgage broker had provided a sound solution to this couple’s debt problem. By taking the outstanding credit card debt that Hank and Deborah owed and completing a simple debt consolidation/home equity loan, they have stopped further negative consequences such as collection agency calls. In addition, their credit rating will show an immediate and marked improvement as the debts are paid to a zero balance owing immediately. As Hank and Deborah are not out of the woods in their situation yet, a mortgage structure for the loan is ideal as this debt is secured by the home and receives the best interest rates available in the marketplace. Equally important is that because mortgages can be amortized over as long as 30 years, this couple’s payments will be lower by $700 per month providing the breathing room to assist in turning a bad situation around. And lastly but certainly not least, the bill at the end of the day was paid by the bank who this Barrie mortgage broker brought Hank and Deborah’s business to.
This is a classic case of The Good and The Ugly where the ugly is debt settlement companies who charge fees up front only to leave consumers in a worse position than where they were originally to the good where a mortgage broker can access secured debt at low interest rates and monthly payments and your credit begins improving today.
In approaching debt problems today, keep in mind not only the cost to you to implement a potential solution, but also the effects it will have in your ability to recover in the quickest amount of time to get your life back on track and move into a positive position with the companies who lend.