Consumer debt is a heavy burden that afflicts many Canadians. With the average total consumer debt being over $27,000, it is clear that Canadian consumers find themselves paying high-interest rates on tens of thousands of dollars owed to credit cards, personal consumer loans and more. Paying only the minimum required payment means that it will take decades to pay back what they owe. Many of these consumers are in debt so deep that they will never be able to pay their creditors in full. If these individuals do nothing, they will likely end up in bankruptcy
If you are deeply in debt and fear that you will end up in personal bankruptcy unless you take action now, then you should consider enrolling in credit counselling immediately. With the right credit counselling program, you can usually get your finances back on track and avoid a credit-destroying debt solution such as the consumer proposal or personal bankruptcy.
What Happens in Credit Counselling?
Consumer credit counselling is a thorough debt education and reduction process designed to provide comprehensive financial help to those who are trapped under the burden of consumer debt. Usually offered by non-profit organizations, credit counselling is often the route people take when they are struggling but can still manage to pay their bills.
The credit counselling process can be quite a lengthy process depending on the amount of debt that you have and your counsellors’ ability to negotiate successfully with your creditors. Using a combination of budgeting and financial education, debt consolidation loans, negotiating with your creditors and other strategies, credit counselling aims not only to get you out of debt but also to give you tools to prevent you from getting too far into debt again.
In the credit counselling process, you typically receive:
• Consultations with a trained financial counsellor on how to develop a budget and stick to it
• Help to negotiate with creditors to get them to reduce or reverse late fees that are currently a part of your debt load
• Assistance with obtaining a debt consolidation loan to lower your average interest rate and your monthly payment amount (if appropriate for your situation)
• A debt repayment plan in which you make one payment each month to your credit counselling agency, a payment that your agency divides and forwards to your creditors appropriately
Is Credit Counselling Right for Me?
Although credit counselling is a wonderful option for many Canadians, it is not right for everybody. Credit counselling can help many people whose consumer-debt-to-income ratio is not very high, but those who have a high ratio and either qualify for bankruptcy or owe enough to file a consumer proposal may be better off choosing one of those debt solutions. A good rule of thumb is that if it will take longer than seven years to get out of debt with credit counselling, bankruptcy or a consumer proposal is likely a better option. Those enrolled in consumer counselling will not be able to get affordable credit while they are in the program, and if you will be in the program more than seven years, one of the other two aforementioned options might be better because they keep you from getting affordable credit only for a seven-year period.
If bankruptcy or a consumer proposal is not a viable option and you do not want to go through the lengthy credit counselling process, you may want to consider debt settlement. A good debt settlement program can often get you out of debt in about 12–36 months or less, so its quick results are definitely advantageous.
Finally, credit counselling is best for those who owe $10,000 or less. Since credit counselling agencies do not usually offer principal reduction services, all they can normally do in terms of what you actually have to pay your creditors is provide assistance in lowering your interest rate and getting rid of fees and late charges. If you owe less than $10,000, the difference between the length of time it will take you to repay your debt with credit counselling and the length of time it will take with debt settlement is negligible. If you owe more than $10,000, however, you will likely save more money and be out of debt quicker when you choose debt settlement.
For More Information
Choosing between debt relief options is always a challenge and speaking to a professional is the best starting point. Fill out the debt relief form to learn more about your options.