Facing debts and financial challenges can be overwhelming, but in Canada, there are plenty of resources available to help you manage debt and regain control of your finances. Credit counselling in Canada is one of many options, offering guidance, education, and support to individuals grappling with debt-related stress. They can support with one on one counselling, group courses on topics like budgeting, and can even prepare debt management plans. If you are struggling to repay your debt, or cannot keep up with your payments, you might wish to speak to a credit counsellor. In this article, we explore everything you need to know about credit counselling in Canada, including what they can and cannot do. Here’s how you can secure the help you need through credit counselling in Canada.
What is credit counselling in Canada?
In Canada, credit counselling refers to a service provided by non-profit organizations to help individuals manage their debts and improve their financial situations. These organizations offer guidance, education, and resources to individuals facing financial difficulties, often by providing:
- Debt assessment: counsellors can review your financial situation, including your income, expenses, and debts, to create a comprehensive overview.
- Budgeting support: counsellors can help to create personalized budgets to manage expenses effectively, prioritize payments, and allocate funds towards debt repayment.
- Debt management plans: counsellors may negotiate with creditors on your behalf to establish a structured repayment plan. They aim to consolidate debts into one manageable monthly payment with reduced interest rates or waived fees.
- Financial education: they can provide resources and education about financial management, including understanding credit, budgeting, and responsible borrowing practices to prevent future debt issues.
It is important to note that these services are often provided by non-profit organizations and are intended to assist individuals in regaining control of their finances. They are not loans and typically do not involve lending money. Instead, they focus on financial education, guidance, and support to help individuals make informed decisions and manage their debts effectively.
What if you require more support than credit counselling?
Credit counselling in Canada will not be for everyone. In most cases, you will need to pay a credit counselling fee, repay 100% of your debts, and there is no guarantee of a reduction in your debts – in fact, your creditors are not obliged to work with you on a debt management plan. Other disadvantages of credit counselling in Canada include the fact that it can have a negative impact on your credit score which can impact your ability to borrow new credit, and you may need to pay a fee. If you are in need of a reduction in your debt, credit counselling does not eliminate debt. If you require guidance on managing and repaying your debt, it is a good option, but for more substantial debt relief, options like a consumer proposal or bankruptcy are better as they are legally binding. Consumer proposals can reduce your debt by up to 80%, and bankruptcy can eliminate your unsecured debts entirely. Learn more about the differences between credit counselling and bankruptcy. You should also note that not all credit counselling agencies offer the same quality of service – they are not legally regulated in the same way as Licensed Insolvency Trustees at firms including Spergel. Some might lack expertise or resources, leading to inadequate assistance or advice.
How to find a credit counselling agency
Before engaging in credit counselling, you should make sure to thoroughly research the agency, understand the terms and implications of the program, and consider alternatives to ensure it aligns with your financial goals and needs. Both not-for-profit organizations and for-profit companies offer credit counseling services. Ensure you know the services that they offer, and exactly how much they cost. Here’s a quick checklist of things to check before working with any credit counselling agency:
- Research their reputation – make sure they are in good standing, and that they adhere to standards of practice. You might wish to work with an association like the Canadian Association of Credit Counselling Services to find an appropriate credit counselling agency. Check to see if there have been any serious complaints about the agency via the Better Business Bureau before you engage them.
- Be cautious – unfortunately, debt management scams are prevalent. As credit counselling agencies are not regulated unlike Licensed Insolvency Trustee firms, some will mislead customers in order to make profit. Remember, if it sounds too good to be true, it probably is. Any claims to sell your debt problems quickly for a fraction of your debt are not always possible, as are claims to fix your credit score. They do not have the legal ability to do so, and rebuilding your credit score takes time. Note that you might need to pay fees even if your creditors refuse to negotiate with your credit counsellor.
- Understand the services and costs – the services that credit counselling agencies offer and the fees they charge can vary greatly. You should check the following:
- the cost of the first consultation is free
- the services provided
- whether or not the agency will provide you with a written proposal describing how they will help
- the type of support the agency will provide to help you improve your money management skills longer term
- if the agency will provide you with monthly statements of payments
- Check the credit counsellor’s qualifications – unlike Licensed Insolvency Trustees, credit counsellors are not legally required to have any specialized training. Some do, however, so you should check to discover their education, experience, and any specialized training.
What is a debt management plan?
A debt management plan is an informal proposal that credit counsellors often provide to help structure your debt. Sometimes, they might be able to secure a reduction in the overall amount of interest that you pay. Debt management plans allow you to consolidate your debts into a single affordable monthly payment. Do note that unlike consumer proposals, which can reduce your unsecured debts by up to 80%, debt management plans usually require you to repay 100% of your debt. In order to enrol in a debt management plan, you will meet with a credit counsellor who will review your circumstances and help you to create a budget. They might also assist you with money management, and provide tips about handling your debt moving forwards. Once you enrol in a debt management plan, your credit counsellor will contact your creditors on your behalf, to see if they will reduce the interest rate on your debt, and/or if they will extend your repayment period. It is important to note that creditors are under no obligation to comply with a debt management plan, or indeed with credit counselling in Canada. Should your creditors accept, you will make regular payments to your credit counselling agency, who will then distribute your payments to your creditors in line with the plan. Creditors are still able to engage collection agencies to recover the money you owe, and credit counsellors do not have the legal powers required to make them stop.
Things to consider before signing up for a debt management plan
There are a few key considerations you should make before enrolling in a debt management plan:
- The overall cost, and any fees the credit counsellor might charge, including administration or upfront fees.
- Any potential cost saving. While securing a lower interest rate on your debt will save you money, any credit counselling fees might diminish this overall saving and so it is important to compare.
- The types of debt covered. Debt management plans might not cover all your debts. While they can typically cover credit card debts and unsecured loans, they do not usually cover debts like car loan debts or mortgages.
- Your obligations. When following a debt management plan, you need to ensure you disclose all debts, make your payments on time, and do not take on additional credit to avoid having your debt management plan cancelled.
- The terms and conditions. You should carefully review your agreement before signing onto a debt management plan. Ensure you thoroughly understand the costs you will need to pay, and the services you can expect to receive.
- Request regular reports for the duration of any debt management plan, as well as receipts of any transactions involved. Make sure that the credit counselling agency is paying your creditors on time.
What are the alternatives to credit counselling in Canada?
Before you rush into credit counselling in Canada, make sure to compare your options. Each individual’s situation is unique, and by exploring alternatives, you might find a more suitable option. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, making them well placed to advise you on your options. Reputable Licensed Insolvency Trustee firms, including Spergel, will offer a free no-obligation consultation to assess your options – you can book your appointment today. Here are some of the most popular alternatives to credit counselling in Canada:
- Consumer proposals – consumer proposals are the only legal form of debt settlement in Canada. Filing a consumer proposal is the process of working with a Licensed Insolvency Trustee to suggest an affordable monthly repayment figure to your creditors. Usually creditors will be happy to receive any figure greater than what they would receive in a bankruptcy, which means often you can reduce your debt by as much as 80%. Consumer proposals have a number of advantages, including the ability to keep your assets, and full protection from your creditors. At Spergel, we have a 99% acceptance rate on any consumer proposals we file.
- Bankruptcy – bankruptcy in Canada is the process of assigning any non-exempt assets you might have over to your Licensed Insolvency Trustee in exchange for the clearance of your unsecured debt. Your assets will then be sold, with any proceeds going towards the repayment of your debt. Bankruptcy is the best pathway to a fresh financial future, and offers full protection from your creditors.
How can I get my debt forgiven in Canada?
Debt forgiveness in Canada isn’t a straightforward process, and in fact, the only Canadian government debt relief program is a consumer proposal. A consumer proposal is a formal, legal debt settlement program available under the Bankruptcy and Insolvency Act. It is a safe, reliable debt relief program that allows you to avoid bankruptcy. Other options that might enable your debt to be reduced include:
- Debt consolidation – combining multiple debts into one with lower interest rates to make repayment more manageable.
- Bankruptcy – while mostly a last resort, it allows for the discharge of most debts but has severe consequences on your credit rating.
- Negotiation with creditors – sometimes, creditors are willing to negotiate partial payments or reduced settlements, especially if you can prove financial hardship.
- Debt forgiveness programs: there are sometimes government grants or non-profit organizations that offer assistance or programs for specific types of debt or circumstances. These can vary based on location and eligibility criteria.
- Seek professional help: Consider consulting a Licensed Insolvency Trustee. They offer tailored advice and guidance based on your specific financial situation, and will likely think of options you might not even be aware of.
Remember, there’s usually no outright ‘debt forgiveness’ without some form of repayment or agreement. It is really important to assess your options carefully, considering both short-term relief and long-term financial implications.
Credit counselling in Canada can support individuals struggling with debt. Before signing up for a debt management plan, it is first important to explore all your debt relief options by speaking to a Licensed Insolvency Trustee. Book a free consultation with an experienced Licensed Insolvency Trustee at Spergel today to take the first step towards a secure financial future.