The Differences Between Credit Counsellors, Debt Counselling & Licensed Insolvency Trustees
- 1 The Differences Between Credit Counsellors, Debt Counselling & Licensed Insolvency Trustees
- 1.1 Understanding Your Debt Relief Options: Debt Counselling, Credit Counsellors & Licensed Insolvency Trustees
- 1.2 What is Debt Counselling?
- 1.3 What Do Credit Counsellors Offer?
- 1.4 Is Credit Counselling a Good Idea?
- 1.5 Alternatives to Credit Counselling
- 1.6 What Do Licensed Insolvency Trustees Offer?
- 1.7 Getting Help from Credit & Debt Counselling Services
- 1.8 More About Debt Management Plans
- 2 Questions to Ask Credit & Debt Counselling Services
Understanding Your Debt Relief Options: Debt Counselling, Credit Counsellors & Licensed Insolvency Trustees
If you are dealing with a large amount of debt and having difficulty paying it off, it’s easy to feel like there is no solution. Debt can be overwhelming and, when you’re dealing with bills, creditors, and collection agencies, it can seem like there’s no escape. However, the good news is that no matter what your debt situation may be, there are options.
Some of these options include debt counselling services provided by credit counsellors or speaking with Licensed Insolvency Trustees. Each of these options is different and each has its own advantages. Learning about them can help you choose the right one for you.
What is Debt Counselling?
Debt counselling services are offered by credit counsellors. Debt counselling can come in the form of one-on-one consultations as well as through group courses and seminars. The goal of these services is to help people understand budgets and credit so they can create and stick to a budget and use credit wisely.
Some debt counselling sessions also assist people with debt payment strategies. People who go through debt counselling may learn strategies for dealing with debt and for avoiding debt in the future.
What Do Credit Counsellors Offer?
As mentioned, debt counselling services are offered by credit counsellors. In addition to providing information and tips, credit counsellors may also offer a debt consolidation strategy called a debt management plan. This is an informal proposal that credit counsellors make with a person’s creditors.
By agreeing to a debt management plan, you consolidate your debts into one convenient monthly payment. This payment is made to the counsellor who then uses these payments to pay your creditors.
There are certain key points to be aware of when it comes to credit counsellors and debt management plans:
- A debt management plan is an informal process. This means your creditors do not have to agree to work with the counsellor and they are free to not accept the terms of the plan. If this happens, you will have to pay them separately.
- Creditors can still use collection agencies to collect the money you owe. Credit counsellors can ask them to stop and try to negotiate with the creditor, but they have no legal power that requires them to stop.
You usually have to pay off 100% of the debts you owe. When credit counsellors speak with creditors, they aim to reduce or eliminate interest or extend the time you have to pay your debts. This can make repaying your debt easier.
However, you will likely still need to pay all the debt you owe, even if the creditor agrees to reduce your interest.
If you are considering credit counsellors, it’s important to choose the right organization. There are both for-profit and not-for-profit credit counsellors. Also, while many credit counsellors have training, they are not legally required to have any specific training. This means it’s important to ask for their qualifications before you agree to work with anyone.
Is Credit Counselling the Right Choice for Me?
First Let’s Talk About What is Credit Counselling and How Does It Work?
Credit counselling is an option for those who are having trouble paying their debts. Depending on the counsellor or organization that you select, you will find that there are different options and services available.
Credit counselling agencies may provide:
- One-on-one counselling
- A credit counsellor can review your financial situation and help you understand some of the options that are available to you that could help improve your finances. They may also provide guidance on budgeting, money management, and using credit wisely.
- Group counselling
- Some counsellors hold group sessions or seminars on how to create a budget, how to use credit, how to stick to a spending plan, etc.
- Debt Management Plans
- A debt management plan is an informal arrangement that a credit counsellor tries to make with your creditors. It often comes in the form of a debt consolidation loan. If you agree to sign up for a debt management plan, the counsellor will contact your creditors and negotiate with them. The goal of these negotiations is to make it easier for you to repay your debts. This is sometimes achieved by reducing the amount of interest you pay or by extending the time you have to repay your debt.
- Creditors are under no obligation to agree to a plan, or even to negotiate with the counsellor at all. However, if they agree, you will make a single monthly payment to the counsellor who will use this payment to pay your creditors.
As mentioned, each credit counselling agency is unique and this means that you may find different counsellors who may offer different services. By researching the available options, you can find the counsellor that is right for you.
Finding a Credit Counselling Agency
An important fact to know is that credit counsellors in Canada are largely self-regulated. This means that some are members of recognized provincial or national associations, but not all. If you are looking for a credit counsellor, it’s a good idea to find one that is a member in good standing of a reputable association, since these associations require members to maintain specific standards.
It’s also important to know that credit counsellors are not required to have any specific training. Before you agree to work with any agency, ask questions about the specific training and experience of the counsellor you will be working with. Finding a counsellor with significant experience and who has received specific training is important.
Know that both for-profit and not-for-profit companies offer credit counselling. Before you agree to work with anyone, it is a very good idea to review their fee structure, figure out exactly what services the agency can offer, determine if you will still be required to pay if the counsellor is not able to successfully negotiate with your creditors, and any other relevant information.
Credit Counselling and your Credit Score
Many people are concerned about the effect that credit counselling will have on their credit score. This makes sense. After all, your credit score is quite important. Whenever you apply for a loan, the lender will look at your credit report and your credit score to determine the risk of them giving you a loan. If you have a poor credit score, you will likely pay a higher interest rate, or you may not be able to get the loan at all.
One thing to note is that simply speaking to a credit counselling service does not affect your credit score. In addition, if you use a credit counsellor only for sessions to learn about budgets or money management, this will not affect your credit score either. However, if you sign up for a debt management plan, this will be noted on your credit report. This note will state that you are making payments through a special arrangement with a credit counsellor, which can make it more difficult to get loans in the future. The note will remain for two years after you have paid off your debt.
While having credit counselling noted on your credit report can be a significant negative, it’s important to consider the state of your credit report before you take any debt relief efforts. In some cases, people who are having trouble with debt have already negatively affected their credit reports.
If you have missed payments, made payments late, borrowed more than you can afford to repay, or generally followed poor credit habits, your credit report could already be negatively affected. When you take debt relief actions (such as proceeding with a debt management plan or consumer proposal), you potentially put yourself in a situation where you can reduce or eliminate your debt and improve your financial situation. Depending on your circumstances, it may be worth it to take the hit to your credit report if it means resolving your debt issues. This is especially true if you have already have poor credit due to your current debt issues.
The reality is that choosing the right debt relief option depends on looking at your current situation and seeing how each option could potentially affect you. There is no “one size fits all” choice that is perfect for everyone. By reviewing all the available options, and figuring out how each option affects your situation, you can determine which is the right choice for you.
Is Credit Counselling a Good Idea?
As mentioned, there is no single debt relief option that is right for everyone. Each individual debt situation is unique.
If you’re considering credit counselling, one of the first things you’ll want to look at is the organization’s fees. Find out what they charge, what services you are paying for, if there are any additional charges, and whether you still need to pay the fees if the counsellor is not successful in their negotiations with your creditors.
Ask questions to find out what services the agency provides, the type of support they will give you to improve your money management and budgeting skills, whether they will give you monthly statements outlining your payments, and much more.
If you’re considering a debt management plan, know that in most cases you will still be required to pay 100% of the debt that you owe. Does that make financial sense for you? If you have loans that charge very high interest, for example, having a counsellor negotiate to lower the rate may be helpful. But, if you owe an amount that is larger than you can afford to repay, reducing the interest or extending the time you have to repay the debt may not be enough.
Alternatives to Credit Counselling
If you are struggling with debt, credit counselling is not the only option. Depending on your situation, there could be several choices available to you. Understanding these choices and figuring out how these choices apply to your situation is the key to finding the right option for you.
Some alternatives to credit counselling include:
- Negotiating with creditors
- You don’t need to use a credit counselling service to negotiate with creditors. You can do it yourself, though it will likely take some effort and persistence.
- This strategy will probably be more successful if you have a strong history with your creditors. If you’ve made all your payments in the past and maintained a good credit rating, you might be able to call your creditors, explain the situation you’re in, and ask for some relief.
- Creditors are not obligated to negotiate with you, but if you’re straightforward and honest you may be able to come to an arrangement that makes sense for you.
- If you are able to negotiate a deal with your creditors, make sure to get it in writing before you start following the new terms.
- Debt consolidation
- A debt consolidation loan is a situation where you take out a new loan and use that loan to repay your existing debts. The goal of the process is to get a loan with a lower interest rate than the overall interest rate on your current debts. If you can do this, it will save you some money in interest.
- If you can get a debt consolidation loan and make your payments on this loan on time, the process shouldn’t negatively affect your credit rating. This is different than the situation with a credit counselling agency and a debt management plan.
- However, if you have poor credit, it can be difficult to get a loan with a low enough interest rate for it to be helpful.
- While you may save money on interest, you will still need to pay the full amount of the debt you owe.
- Consumer proposal
- A consumer proposal is a legal process that can only be administrated by a Licensed Insolvency Trustee. Through a proposal, the trustee makes an offer to your creditors to repay a portion of the debt you owe.
- If the creditors that are owed the majority of the debt vote to accept the proposal, then all are bound by its terms.
- A consumer proposal is noted on your credit report, which could make it more difficult to get loans in the future. However, it allows you to eliminate your debts while only paying a percentage of what is owed.
- You receive legal protection when you file a consumer proposal. This means your creditors cannot take legal action against you to collect. This is different from credit counselling, which does not provide legal protection from creditors.
- Filing for Personal Bankruptcy
- Bankruptcy is also a legal process that can only be administrated by a Licensed Insolvency Trustee. This process allows you to eliminate your debts and start your financial life fresh.
- Bankruptcy is typically the last option considered by people who are struggling with debt, but it can be the right choice in some situations.
Speaking with a Licensed Insolvency Trustee can help you determine which options are available to you so you can make a wise decision for your financial future. Trustees are required to provide details on all possible options, not just the ones they can help with. This means you’ll get information on credit counselling and all possible alternatives as well. Most trustees offer a free consultation and review.
What Do Licensed Insolvency Trustees Offer?
If you are struggling with debt, Licensed Insolvency Trustees are another option that could help. Licensed Insolvency Trustees are licensed by the federal government’s Office of the Superintendent of Bankruptcy to provide information on debt relief and to administer consumer proposals and bankruptcies.
There are certain key points to be aware of when it comes to Licensed Insolvency Trustees, bankruptcies, and consumer proposals:
- Licensed Insolvency Trustees must hold a Canadian university degree (or equivalent) or have at least five years of relevant work experience in the field of insolvency to become licensed. Members of recognized Canadian professional organizations may also be considered.
- When applying, a person must demonstrate a solid base of experience and knowledge in the insolvency industry and must complete certain qualification programs.
- Bankruptcies and consumer proposals are legal processes. This means that, once you file, you receive legal protection from your creditors. They cannot contact you, send collection agencies after you, or take legal action against you. Licensed Insolvency Trustees are responsible for all communication with creditors during these processes.
- In a bankruptcy, your unsecured debt is eliminated and you are able to start your financial life over. Depending on your situation, you may need to make some payments to the trustee (who will distribute them to your creditors) but you will not be required to pay the full debt you owe.
- In a consumer proposal, you make an offer to your unsecured creditors to pay a portion of the outstanding debt. If the creditors that are owed the majority of the debt agree to the proposal, all of your unsecured creditors are legally required to accept its terms. This means you will only be responsible for paying some of the debt you owe and the remaining debt will be eliminated.
Most Licensed Insolvency Trustees offer a free consultation where they can review your finances and give you details on the available options.
Getting Help from Credit & Debt Counselling Services
There are many options for those who are dealing with debt. However, when you’re struggling to pay your bills and having trouble getting by, the situation can feel overwhelming. Debt can be very stressful, that often leads to anxiety and worry, and it’s tough to focus when you’re feeling anxious and overwhelmed. However, it’s important to always remember that there are options, no matter what your situation may be.
One of these options could be credit & debt counselling services.
What are credit & debt counselling services?
These are services that are designed to help people handle their debts. There are many different organizations that provide credit & debt counselling services, so understanding what services these agencies provide and how they could potentially help you is important.
Understanding Credit & Debt Counselling Services
One of the most important points to keep in mind is that credit & debt counselling services are not regulated. This means that the services that each organization offers, the fees they charge, and the strategies they use to solve debt problems may be different depending on who you choose to work with. This makes it very important to do your research before agreeing to proceed with any credit & debt counselling services.
There are both for-profit and not-for-profit credit counsellors, so you’ll want to make sure that you’re working with an organization that makes sense for you and one that provides the services you need at a price that you can afford.
Some services that credit & debt counselling services provide include:
- In-person counselling
- Some credit counsellors will conduct one-on-one counselling sessions where they will provide information on how you can manage your debt, improve your credit score, stick to a budget, etc.
- Group sessions
- Credit counsellors may also offer sessions and seminars in larger groups as well.
- Debt management plans
- A debt management plan is an informal arrangement that a credit counsellor can make with your creditors. The goal of such a plan is to consolidate your debt and make it easier to pay.
More About Debt Management Plans
As mentioned, a debt management plan is one debt relief option that a debt counsellor may offer. In this plan, a debt counsellor will review your debt situation and then contact your creditors to request that they take steps that will make it easier for you to pay your debts.
These steps could involve:
- Reducing the amount of interest or the fees that you pay on your debts
- Extending the period of time you have to pay
If your creditors agree to the plan, you will make a single monthly payment to the credit counsellor who will then use this payment to pay your creditors.
There are a few very important points to keep in mind before you agree to a debt management plan.
- A debt management plan is a voluntary agreement. That means your creditors do not have to work with the counsellor if they do not want to. If they do not, you will need to continue paying them separately based on the original terms of your loan. If you do not pay these creditors, they are free to take legal action against you.
- A debt management plan may save you money on interest or lower the size of your individual payments by extending the time you have to pay, but in most cases, you will still need to pay 100% of the debt you owe.
- The credit counselling agency will likely take a portion of your monthly payments as a fee for their services. The amount that will be taken will depend on the counselling service. Fees vary between different organizations.
- It’s important to compare the fees charged by the organization to the amount that the plan could potentially save you. You’ll want to make sure that you’ll save more than you’ll pay in fees.
A debt management plan can be a good option for some people, such as those who are having trouble paying very high-interest rates on their debts. However, there is no “one size fits all” option that is perfect for everyone.
Asking questions of the counsellor, taking the time to understand all of your options, and using the information you gather to determine what each option means for your situation will help you choose the right solution for you.
Questions to Ask Credit & Debt Counselling Services
Since credit & debt counselling services are not regulated, it’s important to ask questions and find out as much information as possible before you agree to work with anyone. Some questions that you may want to ask include:
- Is there a charge for the initial consultation?
- What services does the counselling agency provide?
- What are the fees for these services?
- Do you still have to pay these fees if your creditors do not agree to work with the agency?
- What sort of education does the counsellor have?
- Credit counsellors are not required to have any specific training
- Before you agree to work with anyone, ask them for details on their qualifications and experience
- Is this agency a member of any professional associations?
- If the agency is a member of any provincial or national associations, is it a member in good standing?
- These associations have standards in place that they require members to follow
It’s also important to determine if you can personally work with the counsellor. There are many different credit counselling services out there and many different counsellors. It’s important that you find one that is a good fit for you. You will likely be working quite closely with this person, so you’ll want someone who’s opinion and judgment you trust as well as someone you feel comfortable working with.
Alternatives to Credit & Debt Counselling Services
There are many different ways to deal with debt and, depending on your situation, different options may be available to you. While credit & debt counselling services might be a good choice for some, it may not be the best strategy for others.
If reducing the amount of interest or giving you more time to pay your debts isn’t enough to deal with the situation, or if a debt management plan doesn’t save you enough money for it to be worth paying the credit counsellor’s fees, you may want to look at some alternatives.
A Licensed Insolvency Trustee can be a good place to start. Trustees are individuals who have been licensed by the federal Office of the Superintendent of Bankruptcy and who are training to provide people with details on the debt relief options available to them. They are also able to administer certain insolvency processes.
Most trustees offer a free consultation where they will look at your finances and let you know what options are available to deal with your debt. Trustees are bound by a strict code of ethics and thus are required to provide you with information on all possible options, not just the ones they can administrate. This is different from some other financial professionals who may only give information on the options they are most familiar with.
One option that is often compared to credit & debt counselling services is a consumer proposal. A consumer proposal can only be administrated by a Licensed Insolvency Trustee. However, there are several differences between these two processes to keep in mind.
With a consumer proposal:
- The trustee determines what a fair offer to your creditors will be. This offer is usually for a percentage of the debt you owe, rather than the full amount.
- The trustee then sends this offer to all of your unsecured creditors.
- If the creditor or group of creditors that is owed at least 50% of the debt chooses to accept the proposal, then all of your unsecured creditors are bound by its terms. This means that even creditors that do not agree to the proposal will need to follow it as long as those creditors that are owed the majority of the debt vote to accept.
- You receive legal protection from your creditors when you file a consumer proposal. This means they cannot take any actions against you to collect on the debts, such as garnishing your wages or freezing your bank account.
- If your proposal is accepted, you will be required to make monthly payments to the trustee who will distribute them to your creditors. The proposal fees will be taken from these payments, but these fees are regulated by the government.
- If your creditors do not accept the proposal, the trustee can adjust and resubmit it.
Much like credit & debt counselling services, a consumer proposal is not necessarily the right option for everyone. There are many different financial situations, and each one has a solution that works best given the circumstances. When you meet with a trustee to discuss your finances, they will let you know what options are available to you. It is then up to you to determine what each option would mean for your financial situation and choose the solution that is right for you. In some cases, this could be credit & debt counselling services, in others, it could be a different solution.
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