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.
Is Credit Counselling Legitimate?
Generally speaking, most credit counsellors are looking to help consumers deal 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.
Watch Out For Misleading Credit Counsellors
Sadly, individuals posing as credit counsellors may try to take advantage of your situation. Here are red flags to watch out for.
False Claims
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.
Pressure Tactics
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.
How To Find A Legitimate Credit Counselling Agency?
If you’re looking for a credit counselling agency in good standing with a provincial or national association, you can use these associations to help you find one:
- Credit Counselling Canada
- Canadian Association of Credit Counselling Services
- Ontario Association of Credit Counselling Services
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 credit counsellor in your region, visit the Government of Canada website for more information and contact your provincial/territorial Office of Consumer Affairs immediately.
Types Of Credit Counselling Companies
In Canada, you’ll find two types of credit counselling agencies:
- For-Profit – As it sounds, for-profit credit counselling means you may be able to get great professional financial help in exchange for service fees.
- Nonprofit – If you’re already struggling with debt, you may prefer a non-profit credit counsellor instead, where no or fewer fees are involved.
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.
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.
How Do Credit Counsellors Help?
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 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.
Consumer Proposal
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.
Bankruptcy
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 report for up to 6 to 7 years.
Searching For Credit Counselling?
Credit counselling can be helpful when you have debt management problems. Many nonprofit agencies in Canada can help you create a budget and tackle your debts head-on. Speaking with a credit counsellor is always a good first step in your debt repayment journey. Your first meeting is free and there is no obligation to continue working with your counsellor.
Credit Counselling FAQs
Does credit counselling affect my credit?
Can my creditors contact me if I speak with a credit counsellor?
Is credit counselling worth it?
