What are Consumer Credit Counselling Services and who needs them? Canadians are experiencing a tsunami of miserable economic conditions. We have inflation, interest rate increases, supply shortages, and the leftover economic impact of the pandemic. In addition, wages aren’t keeping up with price increases in the costs of housing, transportation, groceries, and debt.
When people have difficulty making ends meet, they often use credit to fill in the gaps in their income. People start using their credit cards more and that is OK if you can manage the payments. Others compare credit cards and open new accounts or use balance transfers to get better rates. Others get personal loans from friends, family, payday loans, or online brokers like GoPeer .
If you’re in this situation, you’re not alone. Just know that credit to cover income shortfalls can snowball into a big problem leaving you with debt payments you can’t manage.
What can you do if you’re in over your head? Fortunately, you don’t have to manage it alone because there are services available to help. A consumer credit counselling service is often the first step, and sometimes the only step borrowers need to get their finances back on track. So, what is credit counselling, how can it help, what can you expect, and where can you find a credit counsellor?
- Your guide to consumer credit counselling services
- What is a consumer credit counselling service?
- Who are credit counsellors?
- How can consumer credit counselling services help?
- Referral options
- What to expect
- What you need to know
- Where to find consumer credit counselling services
- Get the financial help you need
- FAQs about credit counselling
Your guide to consumer credit counselling services
Consumer credit counselling services are for people who have trouble managing their finances, usually because they have too much unsecured debt in the form of credit cards, lines of credit, and unsecured personal loans. Credit counsellors can be for-profit or non-profit and offer advice, education, and debt management programs. They will also refer clients to professionals such as Licensed Insolvency Trustees if clients need services that the credit counsellors don’t provide, like a bankruptcy or consumer proposal.
What is a consumer credit counselling service?
Consumer credit counsellors help borrowers manage their finances. They do this by providing financial education, help with budgeting, offering debt settlement programs, and if needed, referrals to other professionals such as Licensed Trustees in Bankruptcy. Credit counsellors typically focus on credit card debt but can also help with unsecured lines of credit and unsecured loans.
Read More: Want To Pay Off Your Credit Cards? Here Are 12 Strategies To Help You Clear Them Quickly
Credit counselling aims to help you get back on track financially if you are overwhelmed with debt payments. They will review your budget to see if your expenses are manageable and can arrange a debt management program for you. If your payments are more than what you can afford, they may refer you to a Licensed Insolvency Trustee who can offer different solutions.
Who are credit counsellors?
Credit counsellors offer advice and education on managing finances and debt. There are no legal requirements for credit counsellors to have any specialized training. Most do have some training, though, and specialized training is available. For example, if your credit counsellor has completed the Accredited Financial Counsellor Canada designation or the Insolvency Counsellor’s Qualification Course, they’ll have the training to help you with your finances.
How can consumer credit counselling services help?
A consumer credit counsellor will look at your finances and give you advice on managing your payments. They will work with you to develop a budget and can offer different solutions based on your cash flow.
Read More: How to Make a Budget With Hardbacon
Your credit counsellor might suggest either a “snowball” or “avalanche” strategy to pay off your debt. The “snowball” debt repayment method means you pay off your smallest debt first and then apply those funds to your next smallest debt in addition to the regular payment. As a result, you’ll become debt free one small loan at a time.
A debt management strategy
The “avalanche” method first targets your debt with the highest interest rate. Then, once you pay off that debt, you apply the extra funds to the debt with the next highest interest rate. You save on interest by retiring the debt with the highest rates first.
Read More: How to Pay Off Debt with the Snowball Method or the Avalanche Method
Restructuring your debt
If you have enough money to manage your payments, they may suggest that you get a consolidation loan to pay off all your outstanding unsecured debt. A consolidation loan can reduce your interest rate and roll all your debt into one payment. It’s wise to check your credit score before applying for a loan to make sure you can qualify. If you get a consolidation loan, the lender might close all your credit cards, which can be a disadvantage. Another potential problem is sometimes people will get the loan but then start borrowing again which could leave them in a worse financial position than before.
If your credit counsellor sees that you have the money to manage your payments, but these strategies won’t work, they may recommend a debt management plan. First, they will contact your creditors and may offer to settle the debt with reduced or no interest. Then, if the creditors accept the debt management plan, you’ll make monthly payments to the credit counselling agency. The agency will then pay your creditors on your behalf. Following the debt management program should pay off your debts within 36-60 months.
After meeting with you and looking at all your information, the credit counsellor might conclude you don’t have enough income to pay off your debts regardless of what you do. In a case like this, they can refer you to a Licensed Insolvency Trustee who can give you other options such as a Consumer Proposal or Bankruptcy.
What to expect
When you contact a credit counselling agency, they will book a meeting with you to take your information. Based on your details, they will give you the best options for managing your debts. They will assist you with financial management and budgeting. If they recommend a debt management plan and you decide to go forward with it, they will arrange it for you. However, it’s important to be aware of the potential drawbacks of a debt management plan before proceeding.
What you need to know
There are several things to consider before accepting a debt management plan. Here’s a detailed list of how it might affect you:
- There could be fees. Always check with the credit counsellor about any fees you might have to pay. Some examples are a first consultation fee, an application fee, an initial setup fee, and others. Compare the fees to the interest and payments you need to make. If the fees are higher, it might not be worthwhile to go ahead with the plan.
- Research the firm you are dealing with. Not-for-profits usually keep the best interests of their clients in mind. For-profit credit counsellors may try to sell you things you don’t need to make money.
- Check your credit counsellor’s credentials. You want to make sure you’re dealing with someone knowledgeable and reputable. You can check their accreditation, and you can research any complaints they may have by looking at their rating on the Better Business Bureau.
- Not all creditors may accept the proposal. If they don’t, you will need to keep making payments because they can garnish your wages or send your account to collections. It’s important to note that a debt management plan is an informal proposal. Your creditors can still use collections agencies to get back the money you owe them.
Consider the impact on your credit score. A debt management plan will show on your credit report and drag down your credit rating. Additionally, it will stay on your credit report for two years after you have made your final payment.
Think long-term. A debt management plan will negatively affect your credit, making it harder to borrow in the future. Take steps as soon as possible to rebuild your credit. One great way to do this is to get a secured, unsecured, or prepaid credit card that reports to the credit bureaus.
Where to find consumer credit counselling services
Struggling with debt is no fun. It adds a lot of stress and can negatively affect your health, state of mind, and even your job performance. If you’re in this situation and would like assistance with your finances, you can find a credit counsellor through the following agencies:
- Canadian Association of Credit Counselling Services
- Credit Counselling Canada
- Ontario Association of Credit Counselling Services
- Canadian Association of Independent Credit Counselling Agencies
Another way to find credit counsellors is to search online or ask for referrals from friends and family.
Get the financial help you need
Credit counselling can be a great option to help you manage your money. You can get help budgeting, using your money wisely, and making your payments. While there are some drawbacks to consider, it can be the right option for borrowers stressed about their financial situation. Be sure to do your research to find the right credit counsellor for you.
FAQs about credit counselling
Credit counsellors use a three-step approach:
1. They assess your financial situation. Credit counsellors do this by looking at your income net of taxes, the value of your assets, your expenses such as groceries, gas, and utilities, and your credit card debt, including minimum payments and interest.
2. They will use the information to develop some solutions for you. Some examples are a consolidation loan, creating a realistic budget to manage your expenses, a debt management proposal, or referring you to a Licensed Insolvency Trustee.
3. They will explain the options and help you with money management basics to avoid financial difficulties in the future.
Credit counselling can help you manage your finances by providing budgeting help, financial education, a debt management program or a referral to other professionals. It helps to have a goal regarding what you want credit counselling to accomplish. Credit counselling can’t get rid of your debt but they can help make it more manageable so you can make your payments. They also cannot fix your credit rating but by implementing a plan and following their advice, you can rebuild your credit score.
Many credit counselling services in Canada are not-for-profit but they may still charge fees. You can normally expect to pay a fee for an initial setup, a monthly maintenance fee, application fees, membership fees and an upfront fee or fee for each creditor. Additionally, credit counselling agencies may negotiate with creditors to receive revenue from a client’s creditors as part of the arrangement. Some credit counsellors may also make money by getting paid a percentage of the debt they recover.
Credit counselling is a good idea if you are struggling with credit card debt. Credit counsellors will help you with budgeting and give you options to bring your debt under control.
Credit counselling does not affect your credit score. Credit counsellors offer advice, financial education, and budgeting help. However, if the credit counsellor arranges a debt management program, this will appear on your credit report and negatively affect your credit rating.
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About The Author: Arthur Dubois
Passionate about personal finance and financial technology, Arthur Dubois is a writer and SEO specialist at Hardbacon. Since his arrival in Canada, he’s built his credit score from nothing.
Arthur invests in the stock market but doesn’t pay any fees because he uses National Bank Direct Brokerage online broker and Wealthsimple’s robo-advisor. He pays for his subscriptions online with his KOHO prepaid card, and uses his Tangerine credit card for most of his in-store purchases. When he buys bitcoins, it’s with the BitBuy online platform. Of course it goes without saying that he uses the Hardbacon app so that he can manage all of his finances from one convenient place.
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