March 18, 2022
How does credit counselling work in Canada and how can it help you pay off your debt while also improving your financial skills?
Credit counselling or debt counselling is a type of debt management solution. Think of it as a way to take control of your debt before it requires a heavier approach like a consumer proposal or bankruptcy. A credit counsellor will help you understand why you feel stuck in debt, teach you a variety of repayment strategies and debt relief options, then help you apply them to your own finances.
Keep reading for more about credit counselling, how it works and whether it’s the right choice to relieve your debt.
Firstly, it’s important to know that the quality of credit counselling can vary quite a bit depending on who is counselling you. While credit counsellors are not required to be professionally trained or certified, finding one with training and certifications is highly recommended. You can look for well-regarded credit counselling agencies through official groups like:
Any of these bodies can verify whether a credit counselling service is trustworthy and qualified. Alternatively, you can book a free consultation with a Licensed Insolvency Trustee to discuss your debt relief options. If they think credit counselling could be helpful, they can set you up with a counsellor they know and trust.
The goal of credit counselling is to equip you with knowledge and money management techniques you can use to get yourself out of debt and stay that way, and they offer a suite of services to get you there.
Ever wonder where your money goes? A credit counsellor will go through your income, assets, expenses, and debts to help you clearly see the flow of your money. Together, you’ll identify strengths and patch any weaknesses.
It’s one thing to learn how to make a budget, but having a professional teach you based on your specific finances may be the secret to finally sticking with it. Over multiple sessions, a counsellor can also provide accountability to help you stay on track.
If credit debt is always giving you stress, a counsellor can give you tips on responsible card usage and credit repair. Even better, they can answer just about every question you’ve ever had about credit scores.
Sometimes the simplest parts of servicing debt are the hardest, like making payments on time, balancing multiple creditors and paying more than the minimum to reduce your debt load. Counsellors can teach you valuable debt repayment strategies to make every dollar count.
When you’re struggling with debt, creditors can seem unapproachable — like a faceless mob who hold power over your debt. A credit counsellor can teach you how to communicate and negotiate with creditors. They can also handle the pestering debt collectors and their shameless calling practices so you can focus your energy on repayment.
A debt management plan is an agreement your credit counsellor can make with your creditors. They’ll negotiate affordable monthly payments, lower interest rates and smaller overall debts. And you’ll only have to make a single payment directly to your counsellor which they’ll distribute to your creditors, almost like a consolidation loan.
First and foremost, it’s a relief because you’ll finally have someone to talk to. They’ll let you describe your debt situation, take you through debt relief options based on what they see and answer any questions you might have. The typical meeting should take between 30 minutes and an hour.
Many not-for-profit credit counsellors are free or inexpensive thanks to donations from government, organizations and creditors who want to increase financial literacy. For-profit agencies are likely to charge, but may still offer free initial consultations.
Regardless of who you choose, they’ll probably charge for additional services — the biggest being debt management plans. They either do this with larger administration fees, or with smaller fees built into your monthly payments. Either way, it will likely still be cheaper than what you’re paying today to service your debt.
Counselling sessions don’t have any effect on your credit score. If you only want to sit down with a debt professional to look at your finances and get advice to help pay off your debts, you’re in the clear. Counsellors will look at your credit score, but they won’t do a hard inquiry. This means outside of you and your creditors, no one will know you’re receiving counselling.
However, executing a debt management plan, it will put an R7 rating on your credit report. This indicates to future lenders that you negotiated a debt repayment program with your creditors and remains on file for six years from when you begin or three years from when you pay off your debts.
While any hit to your credit score can seem frightening, your score is already at risk as long as debt continues to pile up. At the end of a debt management plan, your credit score should be out of danger.
If you think you could benefit from credit counselling, book your free consultation with a BDO debt professional today.
March 18, 2022
How does credit counselling work in Canada and how can it help you pay off your debt while also improving your financial skills?
