If you are in financial difficulty and are considering using a debt settlement company to deal with your debts, then you really should pick-up a copy of the March 26, 2012 Maclean’s Magazine. On page 39 you will find an article titled Growing (debt) pains: Cambridge Life Solutions offers a lifeline to indebted Canadians—using a model that’s banned in the U.S. The story, written by Richard Warnica, presents a review of a debt settlement company operating in Canada called Cambridge Life Solutions, and it is quite revealing.
The title of the piece is a play on Cambridge Life Solutions corporate spokesperson’s old TV show. The spokesperson is Alan Thicke and the show was called “Growing Pains” – a sitcom that was quite popular in its day. Alan Thicke played Dr. Jason Seaver, a psychologist, husband and father of 4 children. The show was a hit and Alan Thicke was all that you’d want a father figure to be.
While stranger storylines have been written, I for one have a hard time picturing the friendly father figure of Dr. Seaver sitting down with one of his sitcom children and actually advising them to deal with a debt settlement company like Cambridge Life Solutions over some of the other options that are available to people in need of debt management services.
For those of you who haven’t read the Maclean’s article, debt settlement plan companies offer to negotiate (settle) with your creditors to reduce the total amount that you have to repay.
According to the Maclean’s article, Cambridge Life Solutions determines your total unsecured debt and then suggests a target of 30% as a reasonable repayment. By way of example, if you owe $60,000, then your target will be $18,000. According to the Maclean’s article, Cambridge Life Solutions then sets you on a savings plan and only once you have accumulated the target in your savings account do they offer lump sum settlement to your creditors.
Cambridge Life Solutions doesn’t actually contact your creditors as soon as you sign with them. While Cambridge Life Solutions states that they contact their clients creditors within 30 days of enrollment 99.9% of the time, they have contracted with their clients for the discretion to hold off on making contact with the creditors for as long as they deem appropriate. But even in those instances where contact has been made shortly after enrollment, settlement proposals generally aren’t made until a much later date. All the while, you make payments to Cambridge Life Solutions, the first portion of which goes towards payment of your fees to them, being typically around 15% of your debt according to the Maclean’s article. In my example that means their fee may be $7,500 – paid mostly upfront, before any reduction has been accepted or even negotiated. While not a psychologist, my father certainly wouldn’t encourage me to pay such an exorbitant fee up front.
In 2010 this form of debt settlement contract where fees were required upfront was banned in the United States. For good reason, a similar ban exists in Alberta and this year, Manitoba passed a similar law. Interestingly, Cambridge Life Solutions does not operate in either Alberta or Manitoba.
I have no idea what percentage of Cambridge Life Solution’s clients successfully save enough money to negotiate deals with their creditors. In the Maclean’s article we are told the success rate in the United States was less than 10% for all clients of debts settlement companies – I see no reason to expect significantly better results in Canada, although Cambridge Life Solutions’ representative doesn’t think the comparison makes sense.
I strongly encourage you to read Richard Warnica’s article in Maclean’s and draw your own conclusions. In the past I have written numerous critiques of the debt consulting industry and I do not hold them in high regard. Neither Alan Thicke nor Dr. Seaver can change that opinion.
My advice? Research your options, including debt settlement plans, credit counselling, consumer proposals and bankruptcy, and only make your decision when you have reviewed all of the facts.