Most Canadians carry some form of debt, whether it’s a mortgage, auto loan, or credit card. Having a certain amount of debt is alright if you’re able to keep up with your bills, but carrying so much that your income can’t comfortably cover it, can place you in some serious financial turmoil.
What else happens when you can’t make your loan payments on time? Find out here.
In British Columbia, the average amount of consumer debt was $23,522 in 2017, though this number is 5.6% lower than it was the year before. Maxing out on debt can place consumers in a risky position to start defaulting on their loan payments, especially if interest rates rise. Even factors such as the sudden loss of a job, a pay cut, an illness, or a divorce can put consumers in a troubling situation if their current debt continues to mount.
Taking out a loan is necessary to help pay for large purchases like houses and cars, but the idea is to pay down that debt over time, rather than holding onto it for good. Unfortunately, many British Columbians have trouble making a dent in their debt load, especially on high-interest credit. This is especially true with credit cards, some of which can charge upwards of 20% interest or more. And those who have payday loans on the books can find themselves paying interest rates as high as 400%.
For those who find it difficult to pay off their debt at a reasonable pace, credit counselling services may be able exactly what you need.
What is Credit Counselling?
Consumers who have found themselves buried in debt might be able to benefit from credit counselling, which is essentially an educational process that teaches consumers how to effectively manage their finances and eventually pay down their debt. It’s also a service whereby counsellors negotiate with creditors on consumers’ behalf in an effort to remove some late payment fees or at least reduce interest rates.
Want to know how you can rebuild your credit after a late payment? Check this out.
Credit counselling will also involve explaining debt consolidation loans, which can help consumers merge all of their debt into one loan, usually with a much lower interest rate compared to some high-interest debt, like credit cards. Not only can a lower rate help consumers pay down debt faster, only having one loan as opposed to several can prove to be much easier to manage.
Credit counselling services are typically provided by non-profit organizations and are designed for those who are still able to pay their bills but need some financial help to climb out from under their debt pile, sooner rather than later.
The goal of credit counselling is to help consumers get out of debt and provide the tools necessary to put a stop to it for good.
Interested in learning about how your credit score is calculated? Click here.
Top Reasons Why People in British Columbia Enter Credit Counselling
Credit counselling has shown to be very helpful for British Columbia residents who have found themselves drowning in debt. Here are some of the top reasons why consumers in BC seek out credit counselling services:
- Job loss
- Pay cut
- Surprise expenses
- Illness or death in the family
When such events occur with little to no warning, consumers can be left scrambling to manage their loans. In such cases, credit counselling may be of some assistance.
Look here to discover more signs that you might need credit counselling.
Is Credit Counselling Right For Me?
While credit counselling may be very helpful for many consumers in British Columbia, it’s not necessarily the right option for everyone. It’s important to take a close look at your specific financial situation and speak with a financial advisor who will be able to help you determine whether or not it’s the right path for you to take.
Credit counselling can help many consumers whose debt-to-income ratio (total monthly debt relative to gross monthly income) isn’t very high, while those with a very high debt-to-income ratio who owe a great deal of money might find other debt solutions more beneficial. Credit counselling agencies offer assistance with reducing your interest rate and eliminating late charges and fees by speaking with your creditors, rather than actually providing services to cut down on principle.
If your debt load is under $10,000, credit counselling might help you get out of debt in a reasonable amount of time. But if you owe a great deal of money – generally over the $10,000 mark – you may find that some form of debt settlement program can be more helpful than credit counselling.
Consumers who participate in a credit counselling program may find that they won’t be able to obtain affordable loans on credit. Since credit counselling agencies typically want to have all credit card debts rolled into a plan, your credit report will likely show this reporting many times over the course of the program. That said, enrolling in credit counselling doesn’t necessarily directly impact your credit score.
Read this to find out how the money you owe affects your credit score.
Generally speaking, credit counselling is advised if it’s possible for you to get out of debt within five to seven years. However, if it will take longer than that to get a handle on your debt through credit counselling, opting for another debt solution may be advised.
Canadians who find themselves struggling to make ends meet every month as a result of mounting debt have several options to choose from in terms of getting some help, including credit counselling. If your debt seems tough to manage and your monthly payments don’t seem to make much of a difference in your debt load, you may want to consider credit counselling as a means to help you get rid of your debt once and for all.