Credit Counselling FAQs
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Credit counselling is a process used to help individual debtors with debt settlement through education, budgeting and a variety of other tools, with the goal of reducing, and ultimately eliminating debt.
There are a variety of credit counselling agencies in British Columbia and across Canada. All are not created equally. It is important for you to do your research and understand exactly what you are signing up for and what the agency can do for you.
How does a bankruptcy trustee help?
At D. Thode & Associates, our Licensed Insolvency Trustees conduct an “assessment”. This is the first stage of the insolvency process, which provides for a financial appraisal interview, a description of statutory and non-statutory options that are available to an individual debtor, and a discussion on the merits and consequences of those options.
What are Credit Counsellors?
These agencies offer advice to individuals who are struggling with debt through budgeting tools, education and the use of Debt Management Plans (DMPs).
Non-profit and for-profit credit counsellors who offer DMPs are licensed under the British Columbia Business Practices and Consumer Protection Act. The License gives the credit counsellor the ability to accept payment from you for distribution to more than one creditor.
DMPs work by having the agency contact your creditors and ask them to take payments over a specific period of time, and also to reduce or eliminate the interest on the debt. DMPs cannot be used for government debts such as income taxes or student loans.
Any time you are considering a DMP, whether it be through a non-profit agency or for-profit, make sure that the contract includes the following statement:
“Debt repayment agents operating in British Columbia are required to be licensed under the Business Practices and Consumer Protection Act and are regulated under that Act. The services of a debt repayment agent are not provided on behalf of, or in affiliation with, the Province of British Columbia or the Business Practices and Consumer Protection Authority, commonly known and doing business as Consumer Protection BC. Using the service of a debt repayment agent will not necessarily improve your credit rating, deter the efforts of a creditor to collect a debt or prevent legal action to recover the debt, including garnishment of your wages. For more information on the regulation of debt repayment agents, please contact Consumer Protection BC.”
You may check to see if a debt repayment agent license is valid HERE
The main difference between a non-profit credit counselling agency and a for-profit is the non-profit agency is supported and funded by your creditors which allows the agency to offer educational resources, community workshops, and online webinars to consumers at no cost to them. The for-profit agencies are funded by fees that you pay them through their DMP program.
Before using this service, do your research and determine who is going to give you the service and experience that you are looking for.
If a DMP is a viable option for you, D. Thode & Associates Inc. can direct you to a reputable credit counsellor that can assist you in filing a debt management program and financial counselling.
Other Debt Management Companies
There are companies that advertise that they work for you, not your creditors, or that their solution will help you get out of debt faster. The reality is they will charge you large up-front fees only to walk you to a Licensed Insolvency Trustee to file a consumer proposal or a bankruptcy. Until the filing is done through the Licensed Insolvency Trustee, you are not protected from actions taken by your unsecured creditors. Interest will continue to accumulate, collection calls will start or continue and legal actions can commence or continue.
Other companies will advertise that they can settle your debts for you. They advise you to not pay any money to your creditors until a certain amount is saved in their accounts through your monthly payments. Once that amount is collected (sometimes taking years), your creditors are free to take legal action, continue to charge interest and garnish your wages if they have a court order. Collection calls will not stop until the debt is negotiated.
Only the options available under the Bankruptcy and Insolvency Act offer the stay of proceedings that stop your unsecured creditors from further collection activities and from charging interest.
What Is A Debt Consolidation Loan?
A consolidation loan is offered by your bank or other financial institution. If you are approved for a debt consolidation loan, the bank or financial institution will lend you funds to pay off a number of smaller debts, leaving you with a single large debt. Typically, the bank would ask for an asset to secure the loan or failing that, a co-signer to guarantee the loan. This may prove to be the biggest obstacle in obtaining a loan. A debt consolidation loan may be a good option if you have a great credit score, have access to a co-signer, if needed, and you have the ability to meet the monthly payment obligation under the loan without going further into debt.
When considering this option, it is important to know exactly what you are agreeing to. Ensure that the interest rate on the loan is lower than the interest rate that you were paying on the debts you are consolidating. We’ve seen lenders charging 33% or higher on a consolidation loan. If you cannot qualify through a bank or a credit union, the rule of thumb is you should be looking at other alternatives to borrowing more money and going further into debt.