Tag Archives: debt consolidation

debt consolidation and credit score

Does consolidating debts hurt your credit rating?

Rustyshackleford14 asks on Reddit:

Hi Victor,

I have the following debts

Line of credit… $13,000 @ 8.99%; Credit card… 1,500 @ 9.99%; Car loan… about $16,000 remaining at 1.99% over 4 more years; OSAP… About $3,000 left, I think around 5% and around 3 years of payments remaining.

My buddy was in a similar situation, but I believe he was playing higher interest rates on his debts. He consolidated his debts for 8.99%

I have two questions…

I was once told consolidating your debts hurt your credit rating. Is this true?

Is the interest rate standard for consolidating? Or do they base it on the individual situation? The majority of my debt is below or around 8.99%, so if it was standard, I’d just end up paying more interest on my total debt, no?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

Hi Rusty,

To answer your questions:

It depends how you consolidate the debts. If you’re taking out a consolidation loan at a bank (at a lower interest rate than the debts you want to pay off) and you use the proceeds to pay off the higher interest rate debt, your credit rating will be unaffected. If you are consolidating your debts through a debt management plan with non-profit credit counselling agency, your credit will be affected. In Ontario, you will have what is called an R7 on your credit report (it means you’re making a consolidated debt payment); for reference, an R1 is the highest credit rating. If you’re consolidating your debt through a consumer proposal (which is a debt settlement under the Bankruptcy Act), you will have what is called an R9 on your credit report (bad debt, uncollectible) until your proposal has been paid in full.

If you’re consolidating by getting a lower interest rate loan to pay off the other debts, then yes, of course you’re paying interest. If you’re doing a Debt Management Plan with a credit counselling agency, the agency will usually try to get a reduction on the interest you’re paying. If you’re filing a consumer proposal, your creditors are legally prohibited from accruing any more interest on your debts. So in a CP, the amount settled would be based on outstanding balance at the date the proposal is filed.

Ontario passes law protecting consumers from debt settlement companies

The Government of Ontario has passed Bill 55, which creates new standards of conduct for “debt settlement services”. Standards include:

  • Banning them from charging upfront fees.
  • Limiting the amount of fees consumers are charged and prohibiting the payment of fees before services are provided.
  • Requiring clear, transparent, and detailed contracts that include information about the effect of the contract on the consumer’s credit rating.
  • Requiring credit counsellors to disclose information to the consumer about how their organization is funded.
  • Establishing a 10-day cooling-off period, providing consumers more time to consider their agreements with companies.
  • Allowing the licences of non-compliant companies to be revoked.

The passage of this Bill was a reaction to numerous complaints made by consumers about the questionable business practices of such companies. Typical among them are:

  • A consumer entered into a contract for debt negotiation. The debt settlement company instructed the consumer not to make payments to her creditors and was told that the business would communicate with the creditors on the consumer’s behalf. Consumers allege continued frequent contact from their creditors and were informed by some creditors that the business did not contact them and further, the creditors conveyed that they do not negotiate with third parties such as debt settlement companies.
  • After contracting with a debt settlement company to improve her credit rating, the business may have made the consumer’s financial situation worse by allegedly creating more debt from the amounts owing to creditors as well as payments owing to the debt settlement company. It is alleged by some consumers that there is a lack of attention to their files. Some consumers allege that their creditors have since taken legal action against them.
  • Consumers allege that business service representatives fail to respond to consumer emails and calls within a timely manner and that it is often difficult to get through to the business phone line and often the phone lines are not functioning properly. Some consumers allege that service representatives from debt settlement companies are often unable to answer questions or offer a way to find an answer to consumer questions. Some consumers allege that the service representatives do not address consumer issues nor provide requested explanations of actions the business is taking in regards to their file.

 

Consumers entered into contracts with Cambridge Life Solutions for debt negotiation. Some consumers allege that the business instructed the consumer to not make payments to their creditors and were told that the business would communicate with the creditors on the consumer’s behalf. Consumers allege continued frequent contact from their creditors and were informed by some creditors that the business did not contact them and further, the creditors conveyed that they do not negotiate with third parties such as Cambridge Life Solutions.

It is alleged by some consumers that after contracting with Cambridge Life Solutions to improve their credit rating, the business may have made the consumer’s financial situation worse by allegedly creating more debt from the amounts owing to creditors as well as payments owing to Cambridge Life Solutions. It is alleged by some consumers that there is a lack of attention to their files. Some consumers allege that their creditors have since taken legal action against them.

Consumers allege that business service representatives fail to respond to consumer emails and calls within a timely manner and that it is often difficult to get through to the business phone line and often the phone lines are not functioning properly. Some consumers allege that service representatives from Cambridge Life Solutions are often unable to answer questions or offer a way to find an answer to consumer questions. Some consumers allege that the service representatives do not address consumer issues nor provide requested explanations of actions the business is taking in regards to their file.

– See more at: http://www.bbb.org/mbc/business-reviews/credit-and-debt-counselling/cambridge-life-solutions-in-vancouver-bc-1254682#sthash.WJY2ndSk.dpuf

Consumers entered into contracts with Cambridge Life Solutions for debt negotiation. Some consumers allege that the business instructed the consumer to not make payments to their creditors and were told that the business would communicate with the creditors on the consumer’s behalf. Consumers allege continued frequent contact from their creditors and were informed by some creditors that the business did not contact them and further, the creditors conveyed that they do not negotiate with third parties such as Cambridge Life Solutions.

It is alleged by some consumers that after contracting with Cambridge Life Solutions to improve their credit rating, the business may have made the consumer’s financial situation worse by allegedly creating more debt from the amounts owing to creditors as well as payments owing to Cambridge Life Solutions. It is alleged by some consumers that there is a lack of attention to their files. Some consumers allege that their creditors have since taken legal action against them.

Consumers allege that business service representatives fail to respond to consumer emails and calls within a timely manner and that it is often difficult to get through to the business phone line and often the phone lines are not functioning properly. Some consumers allege that service representatives from Cambridge Life Solutions are often unable to answer questions or offer a way to find an answer to consumer questions. Some consumers allege that the service representatives do not address consumer issues nor provide requested explanations of actions the business is taking in regards to their file.

– See more at: http://www.bbb.org/mbc/business-reviews/credit-and-debt-counselling/cambridge-life-solutions-in-vancouver-bc-1254682#sthash.WJY2ndSk.dpuf

Consumers entered into contracts with Cambridge Life Solutions for debt negotiation. Some consumers allege that the business instructed the consumer to not make payments to their creditors and were told that the business would communicate with the creditors on the consumer’s behalf. Consumers allege continued frequent contact from their creditors and were informed by some creditors that the business did not contact them and further, the creditors conveyed that they do not negotiate with third parties such as Cambridge Life Solutions.

It is alleged by some consumers that after contracting with Cambridge Life Solutions to improve their credit rating, the business may have made the consumer’s financial situation worse by allegedly creating more debt from the amounts owing to creditors as well as payments owing to Cambridge Life Solutions. It is alleged by some consumers that there is a lack of attention to their files. Some consumers allege that their creditors have since taken legal action against them.

Consumers allege that business service representatives fail to respond to consumer emails and calls within a timely manner and that it is often difficult to get through to the business phone line and often the phone lines are not functioning properly. Some consumers allege that service representatives from Cambridge Life Solutions are often unable to answer questions or offer a way to find an answer to consumer questions. Some consumers allege that the service representatives do not address consumer issues nor provide requested explanations of actions the business is taking in regards to their file.

– See more at: http://www.bbb.org/mbc/business-reviews/credit-and-debt-counselling/cambridge-life-solutions-in-vancouver-bc-1254682#sthash.WJY2ndSk.dpuf