Canadian Debt Relief: What About Government Approved Debt Programs
I have written about consumer proposals many times. A consumer proposal is the only structured formal procedure sanctioned by the Government of Canada under the Bankruptcy and Insolvency Act . This process permits insolvent people to make an official offer with specific terms, to pay their creditors less than the full amount owing in full settlement of all debts. This federal government authorized debt settlement strategy is to pay back only a portion of what you owe and you can take as long as 5 years of routine monthly payments to do so.
To qualify, a person must be insolvent and owe $250,000 or less to all creditors, other than for any financial debts protected security against their principal home. The most common examples are either a home mortgage or home equity line of credit registered against the real estate. The consumer proposal process provides protection from creditors. It is aimed at compromising unsecured consumer debts, including income tax debt, while the debtor makes regular payments. The end result of a successfully completed consumer proposal is debt cancellation of your remaining outstanding debts.
National Debt Relief Review: Does Debt Settlement Work
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National Debt Relief is a debt settlement company that negotiates on behalf of consumers to lower their debt amounts with creditors.
Consumers who complete its debt settlement program reduce their enrolled debt by 30% after its fees, according to the company.
But NerdWallet cautions that debt settlement, whether through National Debt Relief or any of its competitors, is risky:
Debt settlement can be costly.
It can destroy your credit.
It takes a long time. Getting any net benefit requires sticking with a program long enough to settle all your debts often two to four years.
NerdWallet recommends debt settlement only as a last resort for those who are delinquent or struggling to make minimum payments on unsecured debts and have exhausted all other options. For many consumers, bankruptcy is a better option as it offers a faster route to resolving debt. And bankruptcy generally protects consumers from being sued, which is a risk while enrolled in a debt settlement program.
The Risks Of Consolidating
Getting a new loan or varying an existing loan to pay out a number of other loans comes with some risk. Some of the key ones are listed below.
Longer to pay off
The main downside of a consolidated loan is that it usually takes much longer to repay and that means it may cost more in the long run.
Fees, charges and interest rates
Make sure that you check the fees, charges and interest rate of the new loan it may work out more expensive in the long run than if you just kept paying off your multiple debts.
Unsecured into secured
Before you turn all your unsecured debts into a secured debt, remember that the asset given as security will be on the line if things go wrong. You may also be turning short-term debt into long-term debt. If your home is jointly owned with someone else, you may have to pay the debt if they cant.
Single borrower debt to joint debt
Take care and make sure you do not take on your partners debts in a debt consolidation. Where there is a joint debt, you may end up repaying the debt in full.
Only one lender to negotiate with
When you consolidate into one loan you will have only one lender. If you get into financial difficulty again, you can only negotiate with them.
Government backed schemes
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Are There Any Government Debt Relief Programs
No, there are no government debt relief programs for individuals struggling with debt in general. In fact, government organizations like the Consumer Financial Protection Bureau and Federal Trade Commission warn consumers against using debt relief companies.
That’s because debt relief companies often don’t disclose the risk of their programs. Since these programs usually require you to make monthly repayments which many enrollees already struggle with many people aren’t able to complete them in full. In some cases debt relief clients can face lawsuits for nonpayment and end up filing for bankruptcy.
Why Is A Credit Score Important
If you have a good credit score, you may be able to borrow money at a lower interest rate and pay less interest over the long term. Having a poor credit score can make it difficult to qualify for loans, credit cards, leases or mortgages and sometimes results in higher interest rates. Your credit history can also affect your eligibility for some debt repayment options.
Take time to check your credit health every so often. Check your credit report and make sure that there are no errors in the report. Checking your personal credit report will have no effect on your credit score. You have the right to know what information is on your report and can get a copy of your credit report free of charge.
Improving your credit score takes time but there are many things you can do, such as using a secured credit card and making sure you meet all your minimum monthly payments. The Financial Consumer Agency of Canada has more advice on what you can do to improve your credit.
- Additional resources to help you understand credit reports and scores.
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Use Caution When Shopping For Debt Relief Services
Avoid any debt relief organization whether its credit counseling, debt settlement, or any other service that:
- charges any fees before it settles your debts or enters you into a DMP plan
- pressures you to make “voluntary contributions,” which is really another name for fees
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
- wont send you free information about the services it provides without requiring you to provide personal financial information, like your credit card account numbers, and balances
- tries to enroll you in a debt relief program without reviewing your financial situation with you
- offers to enroll you in a DMP without teaching you budgeting and money management skills
- demands that you make payments into a DMP before your creditors have accepted you into the program
How To Find A Reputable Credit Counseling Service
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What About Government Approved Debt Programs
You may have also seen terms like government of Canada debt relief grants or free Canadian government grants to pay off debt. While these look appealing and might make you think there are some ways for you get a deal when dealing with your debt, sadly, this is not the case.
Any company, individual, service, or program that claims they are government approved is often embellishing their reputation or simply misleading you. As was mentioned earlier, the government doesnt offer any debt relief services and doesnt publicly approve or endorse any either.
What these companies often mean by claiming to be government approved is that they have obtained a license from the government or that they are offering a consumer proposal, which is defined within the Bankruptcy and Insolvency Act.
So while many of these services are regulated or licensed by the government, it doesnt mean that they are approved by them. Simply put, companies will use those buzz words as a way to make their option seem like the more official, prestigious, and best one for people who are struggling with debt.
Check out if bankruptcy is the right option for tax debt.
Navient Agrees To $185b Student Loan Settlement With States
Navient, one of the largest student loan servicers in the country, announced Thursday it has reached a $1.85 billion settlement with more than three dozen states in an effort to resolve allegations of predatory lending and deceptive practices over more than a decade.
The resolution includes $1.7 billion in private student loan debt cancellation owed by about 66,000 borrowers nationwide and originated largely between 2002 and 2010 and $95 million in restitution for borrowers, a bipartisan coalition of state attorneys general said.
Pennsylvania Attorney General Josh Shapiro, who spearheaded a lawsuit against Navient in 2017, said the loan management company steered borrowers further into debt through forbearance practices, which allowed borrowers to temporarily postpone repayment while still being charged interest. He also accused Navient of engaging in the use of risky subprime private loans for students to attend for-profit colleges, some with dubious track records, while knowing those borrowers would be unable to repay their debts.
“Navient repeatedly and deliberately put profits ahead of its borrowers it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education,” Shapiro, who co-led the settlement, said in a statement.
Under the agreement, Navient is denying it violated consumer protection laws or caused borrowers harm.
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What Happens To Companies Advertising Government Debt Consolidation
Despite this product not existing, some companies still use phrases such as government debt consolidation in their adverts and across their pages to mislead people possibly in an effort to make themselves seem more authoritative than they actually are.
Regulators, such as the Financial Conduct Authority, have noticed and taken necessary steps against these organisations. Penalising those falsely advertising government debt consolidation, this at least means the misleading adverts will hopefully become less common.
If you do see a company saying their consolidation loans are endorsed by the government, we advise treating them with caution. Chances are, they are just trying to mislead you.
Debt is a very personal matter you want a group to help you tackle it which at least has your best interests in mind.
Working With National Debt Relief
How to qualify: National Debt Relief works with consumers who have at least $7,500 and up to $100,000 in unsecured debt from credit cards, personal loans and lines of credit, medical bills, business debts and private student loan debts.
National does not settle debt from lawsuits, IRS debt and back taxes, utility bills or federal student loans. It can’t settle auto or home loans, or other types of secured debts .
The average client has more than $20,000 in total debt, according to Grant Eckert, chief marketing officer at National Debt Relief. National does a soft credit pull during the application process to verify your creditors and outstanding balances owed on each debt, according to Eckert. A soft credit pull does not affect your credit score.
Due to varying state regulations, National is not available in these states: Connecticut, Georgia, Kansas, Maine, New Hampshire, Oregon, South Carolina, Vermont and West Virginia.
The debt settlement process: Once you hire National Debt Relief, you open a separate savings account in your name. Then, rather than paying your creditors, you deposit a monthly payment to this account. National determines the monthly payment level, which is often lower than the total monthly payments on customers unsecured debts.
Ceasing payment to your creditors means you become delinquent on your accounts, accruing late fees and additional interest, and your credit score will tumble.
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What Are Nonprofit Debt Consolidation Programs
With nonprofit debt consolidation, agencies offer free credit counseling sessions then provide choices for how to solve your specific debt problem. Options include debt settlement plans, debt consolidation loans, debt management programs , and in a worst-case scenario, bankruptcy. These solutions allow you to eliminate debt without taking out a loan.
Why The Claim Government Approved Debt Consolidation Program Is Misleading
The first thing you should know is that no government in Canada federal, provincial, or municipal officially approves any debt consolidation program. Any company making this claim is embellishing what they are selling and are doing so using a misleading claim.
What these companies mean by claiming to be “government approved” is likely one of two things:
Just because a company is licensed by the government or offers a service that is regulated by government legislation does not mean that the company or their service is approved by the government. A local restaurant needs a government license to operate, but it would be misleading for them to advertise that their food or service is government approved. Banks are governed in Canada by the Bank Act, but that doesnt mean it would be appropriate for them to start advertising that their services are government approved.
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Canadian Debt Relief: Informal Options
There are various informal debt-relief options available in Canada. The most common options are:
When when we hear the words debt consolidation we understand that it is the process of qualifying for and taking on a brand-new loan, in order to repay many or numerous smaller debt obligations.
Consolidating debt involves borrowing money. The concept is that either:
- your credit rating is good enough so that you can take on the new unsecured debt or
- you have decided to offer security for the loan.
The primary purpose of resolving your debt via this type of borrowing is to lower the overall interest costs you are currently paying across many credit cards and other debt.
can solve debt problems and supplies you with the skills to live debt-free. solutions consist of teaching proper budgeting, how to use debt sensibly, rebuilding credit and debt management programs.
A word of caution. Please make sure that if you want a credit counselling program that has a qualified and licensed non-profit credit counsellor, you reach out to a real Canadian debt relief provider such as a credit counselling agency and not a debt settlement company.
The Financial Consumer Agency of Canada has provided a stern warning for consumers to be careful when considering using a debt settlement company. Do not be pulled into what looks like the cheapest Canadian debt relief company. The danger signals and warning signs that the Agency warns consumers about are:
Learn About The Types Of Personal Bankruptcy
Federal courts have jurisdiction over all bankruptcy laws, so you must file a petition in a federal bankruptcy court. There are two main types of personal bankruptcy:
- Chapter 13 allows people with a steady income to keep their property. This bankruptcy plan includes allowing filers to keep a mortgaged house or car they might otherwise lose in the bankruptcy process.
- Chapter 7 is known as straight bankruptcy. It involves liquidating all assets that are not exempt under federal or state law.
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How Much Does Debt Relief Cost
Debt relief companies tend to offer a free consultation to get the process started. From there, they charge performance-based fees that typically work out to a percentage of the debt amount you have enrolled.
Based on the companies we profiled, common debt relief charges work out to 15% to 25% of the total debts enrolled in a program. This means that, if you sign up for a debt settlement program with $10,000 in credit card debt, you may wind up paying $1,500 to $2,500 to get it resolved. And remember, thats on top of the amount you pay your creditors to settle your debts.
How We Chose The Best Debt Relief Companies
We started the process by creating a debt relief methodology and then looked for debt relief companies that have been in business for more than five years. From there, we gave precedence to firms that offer a free, no-obligation consultation with a debt consultant. While debt relief companies dont advertise or charge flat-rate fees you can commit to ahead of time, we also gave extra points to companies that advertise a range of potential fees on their websites. Finally, we compared companies based on their proven success in helping clients settle debts for less than what they owe.
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