Of all the debt relief solutions available to consumers in Canada, credit counselling is one of the best in terms of making sure that you understand what got you into debt in the first place and how you can avoid consumer debt problems in the future. If you owe less than $10,000, credit counselling is a viable option for you because the assistance it gives in negotiating with your creditors and helping you learn to manage your finances better is often all that is needed to solve a debt problem of that magnitude.
Those who owe more to their creditors are typically going to be better off with a debt settlement program because the principal reductions you can get will lift your debt burden more quickly and get you on a path to debt freedom within a span of no more than a couple of years. Completing a credit counselling plan, however, can take far longer.
In any case, whether credit counselling is a better option for you than debt consolidation or other debt relief possibilities, it will be good for you to understand just how the process works. Different credit counselling agencies offer different services, but the main services of every credit counselling plan involves the following:
Formulating a plan of attack to get you out of debt begins with your credit counsellor meeting with you to assess your finances. This is similar to the process involved in any other debt relief option, including the consumer proposal. However, there are major differences between what will happen to your credit under credit counselling and the consumer proposal. A consumer proposal affects your credit dramatically, effectively making you toxic to creditors for several years after you file your proposal.
The only way anyone ever gets out of debt and stays there is by learning to formulate and live by a budget. Budgets prevent you from spending more than you earn, thereby helping you to avoid getting into debt so deep that you must file for bankruptcy or take other drastic actions. In credit counselling, you will learn to write a budget that you can live within comfortably so that you do not get discouraged and give up trying to follow it.
Negotiating with Creditors
One of the chief advantages of consumer credit counselling is that your credit counselling agency will contact your creditors on your behalf to negotiate reduced interest rates on your debt. Lowering the interest rates on your debt will relieve some of the strain on your budget because with lower rates come lower minimum monthly payments. If you prefer to pay the same amount each month that you did before the rates were lowered, you will end up paying off your debt more quickly because a greater percentage of your payment each month will go toward the debt principal.
Most of the time, credit counsellors will act as a middle man for you when it comes to paying your debt. You will pay your counsellor one payment, and then your counsellor will distribute it to your various creditors in a way that pays off your high interest debt as quickly possible. The benefit of this is that you won’t forget to make a payment. You will pay a small fee to your counsellor to cover this service and all the other benefits of consumer credit counselling.
If you are looking to negotiate a principal reduction, you are probably not going to benefit very much from credit counselling. Credit counsellors stress managing your existing debt principal over reducing it.
Credit Counselling or Debt Settlement?
Make sure you make the right choice. Take the first step and fill out the Canadian debt relief form on this page and get personalized help for your situation.