Credit Counselling or Debt Settlement: Which is Right For Me?
Many Canadians are struggling to get out from under the shadow of their debts.
Indeed, the average consumer debt for Canadians stands at around $8,500 as of January 2020 (not including mortgages).
Furthermore, 12% of Canadians have consumer debts over $25,000.
The good news is that there are a number of debt relief options available in Canada to those who want to improve their financial wellbeing and rediscover what it’s like to have personal income.
Two such options are Credit Counselling and Debt Settlement plans.
While these options may not seem comparable at first glance, they do have some similarities in terms of how they are viewed by creditors.
Here we’ll look their differences and similarities so that you can decide which, if either, option is the best fit for you.
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation
Credit Counselling & Debt Settlement: What do they have in common?
Both credit counselling and debt settlement help you to better manage your debts rather than writing them off.
As such, they do not force creditors into undesirable situations in the same way that a Personal Bankruptcy or a Consumer Proposal might.
A Bankruptcy gives your creditors very few options.
As long as you fulfil all of your requirements within the first 9 months of filing for bankrupcy, you receive an automatic discharge and your creditors have no choice but to write your debts off.
While a Consumer Proposal can be slightly more advantageous to creditors (a 51% majority need to vote in favour of the terms of a Consumer Proposal to be bound by them), they usually require at least some of the debt to be written off.
As such, both Personal Bankruptcy and Consumer Proposals can have a far-reaching impact on your credit rating and stay on your records for many years to come.
Credit Counselling and Debt Settlement, however, have no such repercussions on your credit rating and may help you to maintain a good relationship with your creditors.
How are Credit Counselling & Debt Settlement different?
Credit Counselling helps those who are heavily in debt to improve their circumstances through financial education and better planning.
It helps them to come to better terms with creditors and arrange mutually beneficial terms of repayment.
In most cases, interest will either be frozen or significantly reduced to make debts easier to manage.
As such, Credit Counselling is the better option if you owe less than $10,000 and have difficulty managing your finances, budgeting and controlling impulse spending.
It not only helps you to pay off your debts, it also helps you to identify the causes of debt.
If there are any underlying emotional or psychological issues which have exacerbated your debt, you may be referred to a specialist for further counselling.
Debt Settlement does not offer the same education, but it can be very useful for those with significant debts who want to be debt-free within just a few years.
Unlike Credit Counselling, Debt Settlement may allow you to reduce the principal (the overall amount owed) making it a great option for those who owe more than $10,000 in unsecured debt.
If you feel that you have learned all the right lessons and will be able to better manage your finances in future,
Debt Settlement can help you to pay off your debts quicker and find yourself with much more disposable income every month.
How is your Credit Rating affected?
The effects of both Credit Counselling and Debt Settlement are less impactful than either Bankruptcy or a Consumer Proposal in terms of your credit rating.
However, they will both leave a mark that may remain for a few years.
Depending on your circumstances, the effects of either may be felt for longer than the other, which is why it’s important to get impartial advice from someone who can show you all of the options available to you.
How we can help
We’ve been helping Canadians from all walks of life to liberate themselves from their debts since 1999.
Over the years we’ve helped over 100,000 people just like you by advising them of their available debt relief options and helping them to make the right informed choice.
If you’d like to know more about our services, call us today on (877)879-4770 to arrange a callback.
This service is risk-free, zero-obligation and 100% confidential.
Our licensed and highly knowledgeable team are waiting to help you to unshackle yourself from your debts.
