Canadians are saddled with some of the highest household debt levels in the world, carrying $2.9 trillion in consumer and mortgage debt — nearly double what they carried 10 years ago.
With more and more people attempting to live beyond their means, it’s only natural that credit troubles are also becoming more common. Insolvencies, and more specifically consumer proposals, have been increasing at the fastest pace since the recession of 2008/09. In fact, October 2019 saw the highest number of insolvencies in a decade and a recent survey indicated that as many as 46% of Canadians are on the brink of insolvency.
If you’re one of the many Canadians feeling the burden of debt, and are unsure of what to do, credit counselling may be a solution. Credit counselling is a process whereby certified counsellors help debtors with debt settlement through tools like financial education, budgeting and guidance in order to reduce and eliminate debt. A certified counsellor can help point you in the right direction and find the solution that works best for your situation.
We break down exactly what credit counselling is and how it works.
What does a credit counsellor do?
When you decide to go for credit counselling, a certified counsellor will review your entire financial situation and speak to you about your options. A not-for-profit credit counselling agency will always have your best interest at heart and will try to avoid bankruptcy wherever possible. They will present you with all your available options and help you determine the best route forward. Most of the time a credit counsellor will put you on a debt management plan and will provide you with detailed information and advice about budgeting, planning, making payments and anything else that will help alleviate your situation and prevent it from happening again in the future.
How does credit counselling help me get my debts paid?
Most of the time, a credit counsellor will put you onto a debt management plan. This means that they will work closely with you to determine a budget that you can stick to, while also making reasonable payments towards your debt.
Credit counsellors will speak to creditors on your behalf and propose a payment schedule based on your ability to pay. Your creditors will be asked to stop or reduce interest for the duration of the program.
Do you have to qualify for credit counselling services?
Aside from being the age of majority where you live, there are generally no qualifications for credit counselling services.
Will using credit counselling services get my creditors off my back?
As many people know, the stress of having creditors contact you every day can be very taxing. If you sign up with a credit counselling agency, your creditors will typically be instructed to deal with the agency instead of you from that point onwards. If you continue to receive phone calls from creditors while on a debt management plan, refer them back to your credit counsellor immediately.
How long does it usually take to be debt-free when using credit counselling services?
The length of time it takes to become debt-free will vary depending on each individual situation. It will depend on the amount of money owed, the repayment schedule you’ve worked out with your counsellor, and creditor’s willingness to reduce interest.
Does visiting a credit counsellor guarantee I’ll avoid bankruptcy?
Every case is different, but generally a credit counsellor will do everything they can to steer you away from the path of bankruptcy. However, if your financial situation is such that bankruptcy is the best or only option, then there is no guarantee you’ll be able to avoid it.
Is credit counselling a private service?
Yes, credit counselling is private, confidential and follows all applicable privacy laws. Other than the creditors you are working to pay off, no one will even know that you have sought out credit counselling unless you tell them.
Does credit counselling affect your credit rating?
Your credit rating may have been affected by getting yourself into a sticky financial situation, but visiting a credit counsellor won’t have an effect on it. If you enter into a payment agreement and schedule, then there may be an effect, but just meeting with a counsellor to talk and figure out your options has no impact whatsoever.
How much does credit counselling cost?
Many credit counsellors do charge a fee, but opting for a not-for-profit counsellor will typically be less than a private counsellor looking to make a profit. Credit Counselling Services of Atlantic Canada charges $25 for a 1.5-hour session, however if someone can’t pay right away, they will provide you with an invoice to be paid at a later date.
The small fee charged by a credit counselling service will pay off in the long-term, usually by saving you thousands a year in interest charges for your debts. It’s also important to remember that filing for bankruptcy is not free and not an easy way out. There are often a lot of fees associate with bankruptcy.