Finding yourself in debt is never a pleasant experience, but with the right type of assistance, the process of getting out of it can be a lot smoother with a great deal less stress. By engaging the help of a professional credit counselor, you will be able to rest assured that things are being done properly and that you will have legal and moral support along the way.
Credit counselling is most often done by credit counselling agencies that are empowered by contract to act on behalf of the debtor to negotiate with creditors to resolve debt that is beyond a debtor’s ability to pay.
1. How does the process work?
Credit counsellors are trained professionals that help people pay off their debt and advise them on how to budget their money and use credit wisely. Depending on the services they offer, some credit counselling agencies are non-profit and others are commercial. Similarly, some charge a fee for their services, but you can also find agencies that do not. All credit counselors are regulated by Canada’s provincial and territorial governments.
2. How do counsellors manage people’s debt?
Credit counsellors offer voluntary debt management programs, which essentially means that a counsellor will take full control of a client’s debts. Once this transaction is complete, the client makes regular payments to the counsellor, and the counsellor distributes those payments to the client’s various creditors. The counsellor assumes responsibility and becomes the main contact between the creditors and the client. The counsellor uses his or her knowledge and expertise to lower the interest rates and fees the client pays to each creditor.
3. What are the legal obligations?
In order to ensure that process remains in compliance with local regulations, people entering a debt management program are usually required to sign a contract, and their creditors must agree to be part of the program. Generally speaking, debt management programs cover unsecured debt, such as credit card debt or bank line of credit, where there is nothing for the creditor to seize in the event the person defaults on the loan. On the other hand, secured loans, such as mortgages and car leases do not usually qualify due to the nature of the agreement.
4. Will it have an impact on credit ratings?
Due to the nature of the process, participating in a debt management program can definitely affect a person’s credit rating. In most cases, creditors will alert credit reporting agencies that the program has been launched, and the person will end up with an R7 rating, which makes it difficult to access more credit. This R7 rating can last up to two or three years after a debt management program is complete.
5. What other services do credit counsellors offer?
In order to help their clients have more positive credit experiences in the future, many credit counsellors offer seminars, courses and one-on-one counselling sessions on managing cash flow, using credit effectively and surviving when unexpected drops in income do occur. The added value of receiving professional advice for little to no cost can often make a huge difference in terms of how a person is able to manage their finances in the future.
6. How to find the right credit counselor for you?
When deciding on a credit counsellor, it is all about reputation. You need to find out whether or not the agency you are in contact with is in good standing with the provincial and national credit associations. It would also be a good idea to check their standing with the business bureau and to make sure that they don’t currently have any outstanding complaints.