What is Credit Counselling?

Many British Columbians are facing financial struggles due to increased living costs and reductions in their income while trying to stay on top of their debts.

If you feel burdened by your debt loan, there are many options available to you to help solve your financial difficulties, including:

  1. Formal solutions through a Licensed Insolvency Trustee including bankruptcy or a consumer proposal.
  2. Credit Counselling.
  3. Consolidation loans.

In this blog, we will focus on Credit Counselling.

Credit Counselling agencies can be either not-for-profit or profit-based, depending on their business model.  The not-for-profit agencies are funded by lenders, including major banks and online lenders, in addition to small fees charged for counselling or debt management plans.  For-profit Credit Counsellors rely on you to pay their fees directly.

Credit Counsellors offer a debt management plan in which you typically repay your creditors, in full, over time.  The Credit Counsellor will contact your creditors to propose a payment schedule and to ask if they will waive or reduce interest.  As the waiving or reduction in interest is voluntary on the part of the creditors, they may or may not agree.  If one of your creditors doesn’t accept the debt management plan, you will be dealing with that creditor on your own.

If a creditor decides to use a collection agency to recover money that is owed by you, your Credit Counsellor can ask them to stop, but in fact, they have no legal power to compel the creditor or their collection agency to stop their debt recovery efforts.

It’s important to note that Government debts including income taxes and student loans cannot be included in a debt management plan.

If you enter into a debt management plan, it will impact your credit rating just as a bankruptcy or consumer proposal would.  In the case of a debt management plan, it will be on your credit report for two years from the date you complete it.

When considering if you should enter into a debt management plan, think of the following:

  1. Will it save you money over time?
  2. What will the costs be? (Be sure to ask!)
  3. Can you comfortably meet the monthly payment requirements of the debt management plan?

If the answer to either 1 or 3 above is no, then consider a free, no-obligation consultation with a Licensed Insolvency Trustee to find out about bankruptcy and consumer proposals.  This will allow you to compare all of the options available before making a decision.

D. Thode & Associates Inc., Licensed Insolvency Trustees.