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Taking out loans to pay for large expenses doesn’t have to be a major financial burden, but a rise in debt can put consumers in serious financial predicaments. In Canada, household debt has been on the increase over the recent past, with total debt surpassing the $1.7 trillion mark.

In the province of Alberta, average consumer debt hovers around nearly $28,000, much more than the national average of $22,125. And residents of Fort McMurray are contributing a great deal towards the province’s debt with a hefty average debt of $37,345.

Considering this amount, it may come as no surprise that Alberta’s delinquency rate continues to increase. With more debt comes a higher risk of defaulting on loan payments, placing Albertans in a vulnerable financial position.

The True Cost of BorrowingCheck out this infographic to learn about the true cost of borrowing.

What is Consumer Debt?

Simply put, consumer debt is the amount of money that consumers owe their creditors for borrowing funds to pay for large expenses. Things like cars or furniture can be bought on credit, though their value does not appreciate over time. In fact, such items tend to lose value the moment they are taken home. Consumer debt can actually be somewhat helpful for those who seek to leverage borrowed money for investments that tend to appreciate over time and increase wealth, such as real estate.

For more information about consumer debt, click here.

However, even taking out a mortgage that’s far beyond your financial means can make you more likely to fall behind on your mortgage payments and even potentially lose your home. While a certain amount of debt is often necessary, holding on to a great deal of debt can wreak havoc on your finances. If your income is not substantial enough to comfortably make your debt payments every month, you put yourself in a risky position to potentially default on your loan and end up being chased after by your creditors and even face bankruptcy.

Read this to learn how you can consolidate high-interest debt into your mortgage.

How Does Credit Counselling Work in Alberta?

If you’ve found yourself struggling to manage all of your debt payments, credit counselling may be a viable option for you. This type of debt solution is ideal for consumers in Alberta who may have a great deal of debt but are not necessarily unable to make their payments.

Consumers in Alberta who would benefit most from credit counselling are those who have no more than $10,000 in debt because the help that this type of program can give is not designed as a debt settlement arrangement. Instead, credit counselling is meant to counsel consumers on how to effectively manage and pay down debt while negotiating with creditors to eliminate late fees and even reduce interest rates.

Those with a lot more than $10,000 in debt would probably benefit more from a debt settlement program that’s designed to lower principal amounts and therefore helps consumers reduce their debt in a shorter amount of time than credit counselling would be able to achieve.

Essentially, credit counselling involves:

  • Debt consultation – Your counsellor will help you come up with a strategy to help you get out of debt;
  • Budget creation – Coming up with a workable budget is the best way to get out – and stay out – of debt;
  • Negotiation with creditors – Your counsellor will work with your creditors to see if there is any way to reduce the interest rate or late fees.

Credit Counselling Vs. Debt Settlement

The main difference between credit counselling and debt settlement is that the former is more geared towards educating consumers and helping them to come up with a more workable and realistic budget and payment plan that will help them get out of debt.

It also involves counsellors speaking directly with creditors to come up with a more manageable loan amount. Changes like these generally don’t negatively affect credit scores, as long as payments continue to be made on time and in full each month.

The latter, on the other hand, is designed to settle a lower loan amount. Debt settlement usually involves negotiating reduced principal balances with lenders, which can often lead to the accounts being settled for less than what was specified in the original loan contract.

Read this to learn how you can qualify for debt settlement.

Unfortunately, loan accounts that are reported as being “settled” may have a negative effect on your credit score.

One of the biggest deciding factors on which route to choose will depend on how deep in debt you are and your ability to make your payments. If your debt load is extremely heavy and you’re on the verge of defaulting on your payments, debt settlement may be your better option.

On the other hand, if your income still allows you to continue to make payments – albeit with little difference in your debt load each month – credit counselling may be a better option.

Learn How to Tackle DebtLearn how to create your own debt repayment plan. Click here.

What to Look for in a Credit Counselling Agency

There are plenty of credit counselling services available in Alberta, all offering to help consumers with their debt. Given all the options out there, it can be daunting to choose the right service to work with. Unfortunately, while there are many credit counselling services that genuinely help consumers in Alberta, there are others that are out there to simply scam vulnerable targets.

So, how exactly do you choose the right credit counselling agency, and what should you look for? Here are a few ways to find a service that will likely be the most helpful and beneficial to you:

  • They don’t have any complaints on record with the Better Business Bureau (BBB)
  • They’re a non-profit organization
  • Their credit counsellors are licensed and qualified to assist you
  • They’ve been in business for a few years
  • They charge reasonable fees
  • The agency is nationally accredited
  • They’re open and willing to answer all of your questions

Asking all the right questions can help you identify which credit counselling agency is looking out for your best interests.

Here’s how to handle your first credit counselling session.

Frequently Asked Questions

Which credit counselling services are trustworthy?

Credit counselling associations ensure that their members are accredited and up to industry standards. The most trustworthy credit counsellors can be found through the Canadian Association of Credit Counselling Services (CACCS), Credit Counselling Canada (CCC), and the Canadian Association of Independent Credit Counselling Agencies (CAICCA).

How is a consumer proposal different from credit counselling?

Consumer proposals are legally binding, making them more of a commitment. You aren’t legally bound with credit counselling, but it lacks certain advantages. Consumer proposals can actually renegotiate the total amount that you owe to your creditors. Credit counselling can only reduce interest rates or extend the time to repay your outstanding debts. In either case, they are reported as R7 on your credit report.

Will creditors still contact me if I’m in a credit counselling program?

Yes. There is no legal restriction when it comes to credit counselling programs. Only consumer proposals and bankruptcies prohibit debt collectors from contacting you. This is because they are legally binding. Credit counselling is not and creditors can withdraw from the arrangement at any time. However, they will usually stick with the agreement so long as you respect the terms.

Final Thoughts

Being in debt can be extremely stressful, but seeking help should never be thought of as a sign of weakness. The sooner you get some assistance ridding yourself of debt, the sooner you can find yourself on the path to financial freedom and credit counselling may be the perfect way to go about it. Be sure to ask all pertinent questions with a credit counselling agency or a financial advisor to see if this debt solution is right for you.

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