Is It the Right Option for Your Debt Needs?
Terms like debt consolidation, debt refinancing, financial counselling, debt management programs, debt reduction services, debt settlement and credit counsellor versus Trustee in Bankruptcy can all be very overwhelming to a person with debt problems. Take the time to learn the facts before choosing credit counselling services or some form of debt settlement as the right option to get out of debt.
Although many people turn to friends, family or Credit Counsellors for clarification, advice and to develop a debt repayment plan, there is often misinformation and myths about bankruptcy passed on to the debtor. Before proceeding with a Credit Counsellor to resolve your debt problems, also seek the free no-obligation advice from a Licensed Insolvency Trustee.
John Adamson of Adamson & Associates is an expert at settling debt problems. He will explain the pros and cons regarding your options of a debt repayment plan with Credit Counselling, a Consumer Proposal or filing for Bankruptcy to resolve your financial challenge.
What is Credit Counselling?
Credit counselling, also known as a debt management program, allows you to consolidate certain debts like credit cards and unsecured loans. Usually the credit counsellor will negotiate a reduction and often the elimination of interest, for a period of time. In order for the program to be successful, all creditors must agree. Some types of debts cannot be included, such as government debts. Because you have to repay all of the debt, your monthly payments are usually higher than in a Consumer Proposal. Also, 100% of your creditors must agree to your debt management program if it is to be successful.
In a Consumer Proposal by a Trustee, you only require a majority of your creditors (majority by dollar value) to accept the proposal and when that happens, the other creditors are legally forced to accept the proposal. Once the proposal is filed by a Trustee, creditors or collection agents may not call you or garnish your wages.
What is a Credit Counsellor?
A Credit Counsellor is an individual who can assist you with your debt problems, with the goal of helping you avoid filing for bankruptcy. For a fee they will assist by setting up a debt repayment plan, usually over a period of up to 5 years, to present to your creditors.
Once the plan has been accepted by your creditors, you start making your monthly payment to the Credit Counsellor. They collect their fees and forward the balance to your creditors to pay the outstanding debt.
The two types of Credit Counsellors are Independent Credit Counsellors and “non-profit” Credit Counsellors. Non-profit counsellors get their funding from credit grantors like credit card providers, stores and banks.
Credit Counselling FAQs
What is the effect of a Debt Repayment Plan on my credit rating?
Once your debt repayment plan is structured by your Credit Counsellor it is submitted to the credit-reporting agency also referred to as the credit bureau. This information remains in their records and will be removed 3 years after the debt repayment is complete.
What is a Debt Repayment Plan/Debt Management Plan monthly amount?
Credit counsellors offer a plan to repay your debt. In determining what amount should be paid, your total unsecured debt is divided by 60 months and that is usually what your payment becomes. In a Consumer Proposal offered by a trustee, the amount that you repay your creditors can be compromised which allows the payments to be lower and more manageable.
Use Caution – Get the FAQS
- Credit Counsellors are unregulated and some may charge a fee for information you can get for free from a Licensed Insolvency Trustee or Consumer Proposal Administrator (Consumer Proposal Administrator is also a Licensed Insolvency Trustee).
- Get a second opinion. A qualified and regulated Trustee will provide you with a FREE no obligation consultation to help you understand your options.
- Insolvency lawyers can also advise you for a fee.
- ‘Non-profit’ Credit Counselling Services encourage you not to file a Bankruptcy as it is in their sponsors (banks, credit card companies and stores) best interest for you to make full payment on your debt. Make sure this is in your best interest, taking into consideration your full financial situation.
- Using a Credit Counsellor will still result in a negative mark on your credit report.
- Credit Counsellors may try to influence you to use their service while providing discouraging or misleading information about bankruptcy or Consumer Proposals. Make sure to avoid the myths and get the facts!
- Make sure your monthly debt repayment plan is realistic and comparable to the payment that you would make in a Consumer Proposal.
- Set no more than a 2 to 3 year repayment schedule so you do not default on the plan.
- Consumer & Corporate Affairs Ontario have issued a number of alerts regarding tactics by companies offering debt settlement services for a fee. It is important to realize that there are no qualifications necessary for a person or company to operate as a debt consultant or a credit counsellor. If you choose to deal with a company or person that is not a licensed Trustee, we urge you to get all the facts before you pay for any service.