How do I decide between a debt management plan or a debt settlement plan? What could go wrong with debt settlement?

AA Canada Credit Advisors' debt management programs are widely accepted because we do inform the creditors that you are willing to make payment in full through our program. A settlement plan is when you do not intend to pay all the debt to each creditor. Those types of plans are more difficult to get accepted by the creditors and means you may go months without paying your creditors, you just pay into an escrow fund and the settlement firm’s fee.

If you have a debt you want to settle with, we will take it under advisement and present to you what we may be able to do for you or how you can directly deal with the creditor. Below are some things to consider when discussing settling your debts.

You should consider your housing plans in the near future. Some (not all) mortgage underwriters will require you to go back and pay any amounts settled before they will approve an application for a mortgage. At the very least, they will want documentation of the arrangements and proof the terms were kept.

You should consider your employment plans in the near future. If you are employed in a field that requires bonding, licensure, or security clearances, settlements can be a potential problem.

Settling the accounts now will still require you to monitor these accounts in the future. You will have to ensure that they are correctly reported to the credit bureaus according to the terms negotiated. The vast majority of reporting to credit bureaus is done through automated methods. Credit reports are notorious for containing errors, mostly because tracking every credit transaction for every adult in the country is a daunting task. You may be required to send documentation to the credit bureaus to update the information on the settled accounts several times during the life of those accounts on your credit file.

You may be able to obtain a credit card after settling your debts, but at what terms? You may have to rebuild your credit with a secured card or with cards that carry unusually high interest and fees. In the short term you must consider the higher cost of obtaining new credit against the savings achieved through settlement.

Settlements are not right for everyone, but if you wish to determine if it is the best option for you, please contact one of our certified credit counselors at 800-626-2063.