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What is the Cost of Debt Settlement?

Cost is invariably one of the biggest concerns that people have about any debt relief option. This is to be expected. If you are already in a great deal of debt and cannot afford your debt payments, adding additional costs for debt relief can be intimidating, even if it means making real headway on repaying your consumer debt.

There are a couple of ways to look at the cost of a debt relief option such as debt settlement. At the outset, however, you should know that there is no such thing as a debt relief option that is entirely free of consequences. Whether you are looking into debt consolidation, a consumer proposal or any other debt solution, there will be a price to pay. Still, some debt relief options are less costly than others. A debt settlement program is typically far less costly in the long run than a consumer proposal or bankruptcy, which is why so many people who are in a significant amount of debt choose to use a settlement option to make things right with their creditors.

The Cost of Not Entering a Debt Settlement Program

There are two different ways to look at the cost of debt settlement. The first of these is the cost associated with not entering debt settlement, which happens when you either do nothing about your debt or you choose another debt relief option. The costs of inaction can be significant.

Emotional Cost — Owing a lot of money is costly for your everyday emotional health, and the calls from bill collectors and creditors only make things worse. The cost is greater if you delay a debt settlement plan and are forced into a credit-damaging consumer proposal that your creditors may ultimately decline, leaving bankruptcy your only option.

Late Fees and Interest — Late fees and interest charges accumulate as you delay choosing a debt relief option. These fees and interest charges are compounded onto the principal, which means that you will have interest accumulating on interest. This increases your debt balances and you will pay more to settle your debt in the event that you eventually choose debt settlement.

High-Interest Rates on New Debt — Late payments and high unpaid debt totals make you a poor credit risk for new creditors. Leave debt unsettled, and you will pay a premium on interest for new loans.

The Costs of Entering Debt Settlement

No matter how it is negotiated, there are costs associated with debt settlement. However, these costs are insignificant in comparison to the costs of doing nothing or choosing a more drastic debt relief option:

Program Fees—A debt settlement plan usually has some fees associated with it. These fees are based on the amount of debt that needs to be settled, the province or territory in which you reside, and the amount of time you are enrolled in the settlement program.

You typically save money in comparison to credit counselling because although credit counselling reduces your interest rate, your principal total remains the same. Thus, you normally end up paying more to get rid of those debts than you would if you settled them for less than what you owe. Importantly, you often pay less in debt settlement fees than you would pay in reduced interest charges with credit counselling. Settlement is also cheaper than bankruptcy because you will not have to surrender any assets. Even with exemptions, you surrender much of what you have accumulated when you file for bankruptcy.

Credit Score Issues—The cost to your credit score is still an issue with debt settlement, but it is far less harmful to your rating than a consumer proposal or bankruptcy. A good debt settlement company will negotiate with your creditors and push to get them to write off the unpaid portion of your debt in a manner that is least harmful to your credit score.

Learn More About Debt Relief

The best way to get a full understanding of the actual cost of a debt settlement program is to have a free personal consultation on all your debt relief options. Fill out the debt relief form for more information.

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