Credit Counselling: Is It the Right Choice for You?
If you’re struggling with debt, you might be wondering if credit counselling is right for you. Here is some information that can help you make this decision.
- 1 Credit Counselling: Is It the Right Choice for You?
- 1.1 What is Credit Counselling?
- 1.2 How Does Credit Counselling Work?
- 1.3 Finding a Credit Counselling Agency
- 1.4 Is Credit Counselling the Right Decision?
- 1.5 Resources & Articles For Managing Your Finances On Your Own
- 1.6 Why You Should Never Pay A Collection Agency
- 1.7 What Is A Consumer Proposal (updated 2021) And How Much Does It Cost?
- 1.8 New – What is Surplus Income Payments
What is Credit Counselling?
If you are having difficulty paying off your debts, the credit counselling may be an option for you. However, there are many different debt relief solutions out there and there’s no single option that is perfect for everyone. Each person’s financial situation is unique and, therefore, different options work differently for different people.
Is credit counselling the right choice in your situation? Understanding the process can help you figure this out.
Credit counselling is a service designed to help people who are having trouble keeping up with payments and paying off debt. Credit counselling agencies typically offer a variety of services, including one-on-one counselling, group sessions, seminars, and more. A credit counselling agency can also sign you up for a debt management plan.
What is a debt management plan?
Debt Management Plan is an option (offered by many credit counselling services) designed to make it easier to repay your debts. A debt management plan is an informal plan designed to reduce or eliminate interest or extend the period you have to repay your debt. This is done by arranging a voluntary agreement between you and your creditors.
Before arranging a debt management plan, the credit counsellor will review your financial situation, provide you with tips and advice on making a budget, and give you some strategies on how you can handle your debts.
How Does Credit Counselling Work?
There are several aspects to credit counselling. Most credit counsellors will start by arranging sessions designed to explain debt repayment strategies. These courses are sometimes one-on-one sessions, but they can be group seminars as well.
Many people who are in debt haven’t been properly taught how to handle debt and pay bills effectively. Not understanding how to use debt responsibly can often result in significant debt issues. When people borrow more than they can afford to repay or when they aren’t sure how to effectively reduce their debt, it, unfortunately, becomes quite easy to wind up in debt trouble. Speaking with a credit counselling service can be beneficial for people in these situations.
The credit counsellor may also recommend that you enrol in a debt management plan. This is an informal plan between you and your creditors. This means that some creditors may agree to take part in the arrangement, but others may not.
- A debt management plan typically involves the credit counselling agency contacting your creditors on your behalf. During these discussions, the counsellor will attempt to negotiate with them to make it easie debt management plan are for you to repay your debts.
- The counsellor may ask that the creditor reduce or eliminate the amount of interest you’re paying on your debt, for example, or request that certain fees be dropped or reduced.
- They may also ask the creditor to give you more time to repay your debt, which will lower the size of each individual payment.
- You will usually still have to pay 100% of the debt that you owe. While interest could potentially be reduced and while you may be given more time to pay your debts, creditors do not typically agree to receive less money than they are owed.
If the creditors accept the terms of the plan, then you will make regular payments to the credit counselling agency and they will use these payments to pay your creditors. In a sense, a debt management plan works in a similar manner to debt consolidation. It is designed to simplify the debt repayment process by giving you a single monthly payment, rather than leaving you responsible for dealing with several different payments, all due to several different creditors on several different dates each month. Having a single payment will streamline and simplify the debt repayment process.
If some creditors do not accept the plan, then you will need to continue to pay these creditors directly.
Creditors who choose not to take part in the debt management plan are free to garnish wages, freeze your bank account, or take other legal action against you if you do not make your debt payments.
Even if you participate in a debt management plan, know that creditors can still take legal action against you to collect the money owed. A credit counsellor can ask them to stop, but they cannot legally demand that they do so.
Finding a Credit Counselling Agency
When it comes to finding a credit counselling agency, one of the most important points to note is that there are for-profit credit counselling agencies as well as not-for-profit credit counselling services. In addition to different business structures, this also means that different agencies charge different fees, offer different services, and provide different support.
Before you agree to work with a credit counselling agency, make sure to do some research into the organization. Find out what services they provide, how much they charge for these services, and make sure the agency maintains a good standing with a provincial or national association.
Read reviews for the agency if possible and check with the Better Business Bureau to see if there are any complaints against the organization. Pay particular attention to whether there are any unresolved or serious complaints against the agency.
Keep in mind that there is not much federal regulation for credit counselling services. This not only means that credit counsellors are free to set their own fees and charges, but it also means there isn’t necessarily a standard in place when it comes to the services they provide or how they advertise these services.
- Look at the claims the agency is making. Do they seem too good to be true? Know that it isn’t possible for a credit counsellor to repair your credit score overnight or resolve your debt problems for only a fraction of the amount owing. You will want to stay away from agencies that make these claims.
- Before working with an individual credit counsellor, ask questions to find out more about their education, their years of experience, and more. Credit counsellors are not required to have any specialized training, but many do have some training. Asking about their qualifications and what training they have completed can help you choose the right credit counsellor.
- Also, a credit counsellor is likely someone that you will be in regular contact with, so you should also make sure that you can get along with them personally.
- Finally, know that credit counselling agencies are free to set their own fees. This means different credit counsellors will have different fees and policies.
- Before you work with an agency, find out if they charge for the initial consultation, what fees they charge for their services, if they still charge fees even if creditors refuse to cooperate, and much more.
Also, make sure to review the numbers before you agree to participate in a debt management plan with a credit counsellor. While the interest rate reduction may save you money, know that you could be charged fees by the counsellor and this will affect how much you’ll actually save or whether you’ll save money at all.
Is Credit Counselling the Right Decision?
As mentioned, there is no single debt relief option that will work for everyone. Each situation is unique, so it’s important to review your options and then figure out which choice is right for you.
Credit counselling may be the right option for people who are faced with high-interest rates from their creditors. For example, credit card companies often charge high-interest rates. This interest can make it difficult to repay debt. If you work with a credit counselling service, they may be able to convince the creditor to reduce the amount of interest you pay.
However, know that not only are creditors not required to cooperate with a credit counsellor but that you may be able to request a lower interest rate from a creditor on your own. However, credit counsellors may have more success in these negotiations due to their experience and the reputation of their agencies.
Also, remember that entering a debt management plan will negatively affect your credit score. However, while this is true, if the plan helps you eliminate your debt, it may be worth it in the long run.
Alternatives to Credit Counselling
Credit counselling is not the only option for those who are struggling with debt. While it can be the right option for some people, it’s important to explore your options before you commit to a solution.
Speaking with a Licensed Insolvency Trustee can help you discover the options available to you. Trustees typically offer a free consultation where they will review your situation and provide you with details on the available options. Their old titles as Bankruptcy Trustees (now License Insolvency Trustees – LIT) are required to provide detail on all options, not just the ones they administer. Credit counselling services, on the other hand, may recommend a debt management plan over other options since this is the method with which they are most familiar.
Also, Licensed Insolvency Trustees are the only ones who can administer legal processes such as consumer proposals and bankruptcies. If you decide to go ahead with either of these options, you receive legal protection from your creditors. This means they cannot take collection action against you and any actions (such as wage garnishment) that are already in place must stop.
If you review all your options and compare the costs as well as the other pros and cons, you will be much more likely to choose the debt relief option that is best for you.
Resources & Articles For Managing Your Finances On Your Own
Paying a collection agency will not measurably improve your chances of collecting the debt. The only thing that paying a collection agency will do is to enrich the agency and make it more difficult for you to collect the debt
A consumer proposal is a legal procedure that is developed for people that are not able to pay their debts completely, but who have the capability to pay a portion of the cash owing.
Your Surplus Income Can Determine The Length Of Your Bankruptcy. Your bankruptcy trustee takes a lot more into account than simply your paycheque.
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