When you recognize that you have financial problems and are looking into settlement as a way to work them out, it’s important to understand how this debt relief option works. Every situation is different and what may work for one person may not be effective for another. debt consolidation services Toronto is considered a common debt relief option to help people solve their money problems.

How it works

In a settlement, the money you owe a creditor is paid partially. This can only happen if the creditor agrees to receive the partial repayment by reviewing your current financial situation. The creditor will accept the settlement agreement and stop collection efforts. This means that the harassing phone calls or threats to file a law suit against you will immediately stop if the creditor agrees to receive partial payment of the debt you owe.

How to make settlement work for you

You need to speak to an insolvency expert and understand whether settlement is the best debt relief option for your situation. One of the things that most experts recommend is making sure creditors indicate that the accounts are “paid in full” on your credit report. If you do not do this, then the remaining balance may be forwarded to a debt collection agency and this will further damage your credit rating.

Another thing you need to do if you are going to agree to a creditor settlement is making sure the agreement is made in writing. Do not make any partial payment if you do not receive the agreement from the creditor with clear instructions on what was agreed upon in writing.

What are the ramifications?

This will depend on the amount of money that you owe. If the balance required from you by the creditor was more than $600 then the institution will have to report this to the IRS. Some creditors will even sell the balance to a debt collection agency. The issue with having the debt reported to the tax agency is that it will increase your tax liability. Reporting the debt to the collection agencies also undermines your credit worthiness. For these reasons, debt settlement may not be the most ideal solution for those people who owe very large amounts of money.

Focus on the bigger picture

The immediate result of a settlement is a lower credit rating. However, this can eventually help to rebuild your credit score. You will have to decide whether or not it is worth it depending on your unique situation. Other options such as debt consolidation Toronto can still be explored. To start with, settling part of the debt you owe will help to lower the debt to income ratio which is very good for your credit score. You will no longer have unpaid payments every other month which is also good for your credit rating. As soon as you settle your debts, you can start focusing on rebuilding your credit worthiness. You can then work your way towards securing financial products such as loans with low interest rates after you settle your debts.


The experts at York Credit are here and ready to help. What are you waiting for? Let’s start talking!