Warning: Debt reduction schemes can be too good to be true!

This process is often called “debt reduction,” “debt settlement,” “debt relief” or “debt negotiation.” “Unfortunately, people do not always see the benefits that debt reduction companies lead them to expect-and some people wind up even deeper in debt than they were before,” says FCAC Commissioner Ursula Menke. “If an offer to reduce your debts seems too good to be true, it probably is.”

The Mosaic Credit Counselling team also expresses concern that individuals proceed with care when dealing with debt reduction companies. Mosaic credit counsellors have seen the results of individuals who have previously sought help from these debt relief operations only to find themselves in more desperate situations, having paid significant upfront fees.

The FCAC urges consumers to be aware of the following:

  • High-pressure sales tactics. Some debt reduction companies use aggressive, high-pressure tactics on the phone. If you get a telemarketing call, don’t agree to anything right away.
  • Unrealistic claims about slashing your debt. Many companies will claim they can work with your creditors to reduce your debts by a large percentage-maybe 60 percent or even more. However, there is no guarantee that your creditors will agree to reduce your debts. In fact, they may not even agree to participate in debt negotiations. You could end up paying fees for nothing.
  • Misleading information about protecting your credit rating. Another claim is that there won’t be any negative effect on your credit rating or score if you work with a debt reduction company. Some companies delay making payments to creditors for a few months in the hope of getting better results from negotiations to reduce your debts. If this happens, your creditors will usually report your missed payments and your credit rating will be damaged. You may also face late payment and interest charges.

Mosaic has offered not-for-profit credit counselling in the region for over 40 overs and is fully accredited with the Ontario Association of Credit Counselling Services.  Call us at 519-743-6333.

Read the Globe article Beware the debt-reduction pitch

About Kathie Must

Kathie Must is the Director of Workplace Programs at Mosaic Counselling & Family Services. Mosaic has provided Employee Assistance Programs to regional firms for over 25 years. Mosaic provides EAP and consulting services to organizations in every sector, from 10 employees to over 2500, and with divisions anywhere across Canada and the USA. In December 2009, Mosaic launched www.mosaiceap.ca, a new membership-based, interactive web portal to help business leaders deal effectively and proactively with the impact of mental health issues in the workplace. Leaders benefit from information, tools, resources and forums that will help them manage people issues. In addition, the portal provides a wealth of personal and wellness resources for employees, dealing with topics such as anxiety, depression, effective communication, and conflict in the workplace.Kathie's background is in human resources and business management. She is joined by a team of outstanding clinical, research and communications people. Kathie will bring the breadth and depth of the team's experience to this blog. Mosaic is focused on assisting leaders build healthy, resilient and productive workplaces. Mosaic is a professional counselling agency that has been in the business of helping people find solutions to a diverse range of social, emotional and financial problems since 1952. Mosaic understands the many problems that employees bring to the workplace, and the additional challenges that leaders face in managing the workforce today -- and how critical a reslient workforce is in the manufacturing sector. Mosaic is also known as a community innovator and home of many exciting community projects, including the successul Family Violence Project and Pathways to Education.

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