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Check out debt settlement companies before you pay, warns BBB

A recent TransUnion study suggests that Canadian debt loads continue to grow, finding that total debt per consumer, excluding mortgages, grew to $25,597 in the first quarter of 2011.

A recent TransUnion study suggests that Canadian debt loads continue to grow, finding that total debt per consumer, excluding mortgages, grew to $25,597 in the first quarter of 2011. Similarly, a report issued Toronto-Dominion Bank recently found that while Canadians household debt is more in line with income, overall debt loads remain high.

With so many Canadians struggling to keep their credit in check, many are turning to debt settlement services for help - without taking the necessary steps to check out the company they're dealing with first, according to a Better Business Bureau press release.

"Offers to help reduce monthly payments and settle your debts can seem like a lifeline," said Lynda Pasacreta, BBB president and CEO. "But it's important to understand what the implications are and the track record of the company before entering into any agreement to negotiate your debt."

As the demand grows for debt assistance numerous companies identifying themselves as debt settlement experts or credit counsellors have been marketing their services in the Lower Mainland, prompting hundreds of inquiries to BBB.

One company advertising its services locally is Cambridge Life Solutions Inc., which began operating in Vancouver this past December and has already generated more than 1,500 inquiries from consumers - more than 700 in May alone. It has since opened another office in Toronto.

Another company, a Florida-based organization called the Vortex Debt Group Inc., has been promoting its debt negotiation services through telemarketing. But it has an F rating with the BBB, based on 45 complaints filed against it and recent government action by the attorney general in Missouri, which alleged that Vortex had engaged in deceptive and unfair practices by promising to reduce consumers' debt, taking significant fees from consumers in exchange for this claimed service, and failing to actually reduce consumers' debts.

Before agreeing to allow a third-party to negotiate your debt with creditors, BBB reminds consumers ask the following questions to ensure that they're dealing with the right company and getting the best guidance:

What is the company's performance in the marketplace? Always check out the company with the BBB first to find out if this is a business you can trust.

Is the company licensed and regulated by a government body in B.C.? In British Columbia, Consumer Protection BC licenses and regulates debt settlement organizations by issuing debt collection and debt pooler licenses. If a company is not licensed, consumers have little recourse if something goes wrong. To find out if a company is licensed or requires licensing, contact Consumer Protection BC at 1-888-564-9963 or

How does the company get paid and does it still get paid if it is unsuccessful at negotiating a debt settlement for you? If a company insists on payment before reviewing your finances, you may not be receiving the best advice on dealing with your debt. Keep in mind that debt negotiating companies cannot guarantee creditors will accept their proposal to settle your debt for less than half of what you owe. If they are unsuccessful at negotiating on your behalf, find out if they will give you your money back.

Does the company make claims about the percentage of their clients that successfully settle their debts with creditors? An ethical business will not make claims that cannot be substantiated. Privacy laws and confidentiality agreements will prevent a business from disclosing information about previous customers. If a company makes claims about the number of clients it has successfully helped negotiate their debt, challenge the company to provide proof to validate their claims.

Is the company making guarantees that creditors will work with them in accepting a settlement? While some companies may claim numerous success stories and assure you that creditors will work with them, there is no guarantee. If you are maintaining your payments, have a regular income or assets like real estate, your creditors may not accept a proposal to settle your debt. A good debt settlement company will tell you as much, and help you to evaluate all options to resolve your financial difficulties.