Everyone accumulates debt at some point, whether it’s credit card bills or mortgage payments. Unfortunately, it can be tough to manage all that debt, which is when you might consider different debt-relief options, like credit counselling.
Then again, is credit counselling good for you or are credit counsellors actually looking to take advantage of desperate Canadians?
What Is Credit Counselling?
Credit counselling agencies are organizations that help consumers with their debt and money management skills. They offer consumers financial advice that will not only help them become debt-free but also ensure they learn valuable financial skills and literacy that will help them remain debt-free. Generally, a credit counsellor will first go over all your personal finances and debts to determine if budgeting and better money management can help solve your problems. However, if that doesn’t work, they’ll recommend more aggressive debt relief options like:
Debt Management Program
A debt management program or a DMP works a lot like a debt consolidation loan where all your debts are consolidated into a single loan. Except with a DMP, you aren’t taking out a new loan, rather, your credit counsellor will negotiate with your creditors to consolidate your payments. Moreover, your credit counsellor may be able to waive any interest charges on the loan, however, you’ll still be liable for the principal loan amount. Typically, these payments will be made over a 3 -5 year period.
A consumer proposal is a legally binding process that can only be administered by a Licensed Insolvency Trustee (LIT). They will work with your creditors to come up with a payment plan that works for both you and the creditors. This option is generally better than bankruptcy as it allows you to keep your assets and you’re often only required to pay back a portion of your debt. The rest is forgiven. However, it’s important to note that there are serious consequences to a consumer proposal. For one, consumer proposals generally last up to 5 years. And two, consumer proposals stay on your credit report for 3 years and cause your credit rating to drop to an R7.
Unlike a consumer proposal, a bankruptcy absolves you of most of your unsecured debt. However, in the process, you may lose some or all of your assets. Bankruptcy typically lasts between 9 and 21 months depending on your surplus income. Moreover, your credit rating will drop to an R9 and will remain on your credit reports for up to 6 to 7 years.
Types Of Credit Counselling Companies
In Canada, you’ll find two types of credit counselling agencies:
As it sounds, for-profit credit counselling means you may be able to get great professional financial help in exchange for service fees.
If you’re already struggling with debt, you may prefer a non-profit credit counsellor instead, where no or fewer fees are involved.
Is Credit Counselling Legitimate?
Generally speaking, most credit counsellors are looking to help consumers dealing with debt and not take advantage of them. It’s a service that can help you access various financial aid programs, such as budgeting courses, debt consolidation products, and creditor negotiations. If necessary, a credit counsellor can refer you to a Licensed Insolvency Trustee who can help you file a consumer proposal or declare bankruptcy.
Why Choosing A Nonprofit Credit Counsellor Is The Right Move
If you pick nonprofit credit counselling, you won’t be charged for any advice, courses or services you accept. Counsellors aren’t out to make money from your debt problems, nor will they judge you because of your financial situation.
Plus, nonprofit credit counselling companies are regulated by the government, so your information will stay private and, with the exception of intensive programs like bankruptcy, you won’t have to provide your credit card or banking details.
Nonetheless, it’s important to carefully research your potential credit counselling company before you apply for any services. This is the best way to avoid fraudulent credit counsellors.
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Watch Out For Misleading Credit Counsellors
That brings us to our next section; what to look for when it comes to a possible credit counselling fraud. Sadly, there are individuals posing as credit counsellors that will try to take advantage of your situation. Here’s how:
Some fake credit counsellors make claims that aren’t true. For instance:
- They can solve your financial problems for payment or a deposit
- They can fix bad credit and elevate your credit score
- They offer services that are supposedly part of a government program
- They can erase or remove negative information from your credit history
You are the only one that can repair your finances and pay your debts. The same goes for having information removed from your credit history, which can only be done by Equifax or TransUnion when there’s an error on your credit report.
A good credit counsellor will never pressure you into buying products or choosing a specific debt solution. The main goal of a credit counsellor is to give you financial knowledge, make suggestions and when necessary, help negotiate with your creditors, or connect you with optional debt management strategies.
“Debt Consultants” or “Debt Coaches”
Unlike a credit counsellor or financial advisor, there are no requirements to become a “debt coach” or “debt consultant”, which many fake credit counsellors will pretend to be. They may even make outrageous claims that they can magically reduce your debts.
In reality, debt “coach” and “consultant” are vague terms, so you may encounter all sorts of unlicensed “professionals” offering products or services that are plain useless.
Only a court officer known as a Licensed Insolvency Trustee can help you enter a program (bankruptcy or consumer proposal) that will legitimately reduce your debts. Actually, certain illegitimate companies will charge you to “fix your debt”, when what they’re really doing is connecting you with a LIT, which you can do yourself for zero upfront fee.
How To Make A Complaint Against A Credit Counselling Agency
Remember, there are federal and provincial/territorial laws that regulate how credit counsellors practice their trade. The government is also responsible for investigating any consumer complaints about credit counselling agencies.
If you need to launch a complaint against a sketchy credit counsellor in your region, visit the Government of Canada website for more information and contact your provincial/territorial Office of Consumer Affairs immediately.
Does credit counselling affect my credit?
Can my creditor call me in I speak with a credit counsellor?
Is credit counselling worth it?
If you’re struggling to make your payments and are spiralling further into debt, then you should consider speaking to a credit counsellor. Credit counselling can help simplify your finances and provide you with solutions that best fit your situation. While there may be some shady credit counselling agencies, you can choose to work with a non-profit organization. This will ensure that your counsellor is providing advice solely for your benefit and not for profit. Credit counselling can help simplify your finances and provide you with solutions that best fit your situation.
Searching For Credit Counselling?
Credit counselling can be helpful when you have debt management problems and there are many nonprofit agencies in Canada that can help you create a budget and tackle your debts head-on. Just make sure your credit counsellor isn’t up to anything shady!
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