If you’ve noticed a sudden proliferation of ads for debt-assistance services, your eyes aren’t fooling you.
As levels of personal debt continue to rise—Canada recently outpaced the U.S. in per capita household debt for the first time—the market for debt assistance has expanded in kind. And while the actual size of the industry is currently unknown, advertising companies reveal that ad spending from the sector has increased by as much as ten times over the past year.
Statistics Canada recently reported that the country’s debt-to-income ratio reached a record high of 148% in the third quarter of 2010, and 2009 saw a record number of bankruptcies (116,000). As a result, traditional non-profit debt counseling services are now being challenged by private, for-profit debt agencies.
Such agencies use different tactics—and different revenue models—than non-profits, which are typically funded by donations from credit companies. For-profit companies usually require an up-front fee, and will negotiate a settlement between debtors and lenders. If the company can push the lender to accept a lower settlement afterwards, they will pocket the difference.
So the question is, who has the debtors’ best interests at heart? You’ll only know by asking lots of questions before signing any papers.