📅 Last Updated: December 3, 2021
✏️ Written By Lisa Rennie
🕵️ Fact-Checked by Caitlin Wood

Most Canadians in British Columbia 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.

Maxing out on debt can place British Columbia 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 British Columbia 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 in British Columbia who have payday loans on the books can find themselves paying interest rates as high as 400%.

For those in British Columbia 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 in British Columbia 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 in British Columbia 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 in British Columbia 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.

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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 British Columbia seek out credit counselling services:

  • Job loss
  • Pay cut
  • Overspending
  • Surprise expenses
  • Illness or death in the family
  • Divorce

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 in British Columbia 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.

Frequently Asked Questions

What type of debt does credit counselling cover?

Credit counselling typically covers unsecured non-government debt. This includes credit cards, lines of credit, payday loans, personal loans, and so on. Taxes, student loans, mortgages, and car loans are not usually covered.

Can I still be contacted by creditors while in a credit counselling program?

Yes. Debt collectors are only prohibited from contacting those in bankruptcy or in a consumer proposal. This is because those are legally binding, whereas credit counselling isn’t. That said, creditors aren’t likely to contact you if you don’t miss any of your payments in your debt management plan.

How will credit counselling affect my credit score?

It will negatively impact your credit score, but not as much as a consumer proposal or bankruptcy. The debts included in your debt management plan will be reported as R7 or I7 and stay in your credit report for 2 years. A consumer proposal will also report as R7 or I7 but will stay for 3 years. Bankruptcies report as R9 or I9 but will stay for 7 years the first time and 14 years for repeat bankruptcies.

Final Thoughts

Canadians in British Columbia 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.

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