Credit Counselling in Canada – How Does It Work?

When the credit card bills start piling up, and the bank accounts are empty, it’s easy to panic.

Financial problems can quickly spiral, as it’s easy to turn for expensive loans as a quick solution. 

There are many reasons for debt, ranging from job loss or pay-cuts to divorce.

Constantly worrying about money is incredibly stressful; stress that can sometimes lead to a feeling of paralysis and overwhelm.

But even though it may feel like there is no way out, often there are solutions to be found.

You just need to ask for the right help.

Professional Credit Counselling agencies can offer an efficient alternative to bankruptcy, even when you’re facing a severe debt situation.

Talking to an experienced advisor will help you find new solutions.

Sometimes you can get help negotiating better terms for your payments.

In this article, we’ll have a closer look at how Credit Counselling and Debt management can be an alternative to bankruptcy.

What is Credit Counselling?

Credit Counselling is an informal process for lowering or eliminating your debt.

You work with a credit counselling agency, which helps you negotiate with creditors to restructure your loans and mortgages; usually into monthly increments.

Keep in mind that creditors are by no means required to negotiate with a credit counselling agencies.

But by choosing an established and reputable debt negotiator, you will dramatically increase your chances of consolidating your debts and loans.

Step 1: Get an overview

Before taking any further action, it’s essential to gain a clear picture of your current situation.

This includes going through your assets and incomes on the one hand, and your expenses on the other.

We have a look at your cash flow and create a sustainable budget taking both regular (monthly recurring) costs and irregular (annual or other) expenses into account.

Often, this step brings surprises and essential insights.

Seeing your incoming and outgoing cash flows on paper is often a Heureka moment, where clients realize what has gone wrong and needs fixing.

Step 2: Analyze income, spending and debt

Now it’s time to analyze the situation, with your budget as a point of departure.

Does the budget work out by the end of each month, or is there a need for adjustments?

What expenses can be lowered, and what incomes can be increased?

This is where we have a close look at your debt situation and analyze how much your different debts are costing you.

This can be a very inspiring stage, where clients realize how they can finally alter their situation and create a more sustainable lifestyle.

Sometimes small changes, like cutting down on restaurant meals, travelling or that daily takeaway latte can make a big difference.

Perhaps there is something you could sell, or a subscription to cancel?

Here we take some time to consider what lifestyle changes and choices will have the most impact.

Step 3: Investigate solutions for credit restructuring of loans

Now it’s time to evaluate the options based on what we found in the previous steps.

If it makes sense for you and your situation, this is when we start planning for a debt management program (DMP).

A DMP is designed to completely clear the client from debt within a timeframe of four to five years.

It is based on individual negotiations with each creditor, where different options for debt relief are examined.

It can, for example, be a matter of reducing or stopping interest rates, or of dividing large sums into monthly incremental payments.

Most of the times, we manage to get agreements with creditors, as the DMP often is a win-win deal for both creditor – who now gets paid – and the debtor, who regain control over their financial situation.

Will debt management impact my credit report?

If you choose to enter a debt management plan, it will impact your credit report negatively.

Your credit score will decrease, as it will be noted on your credit report that you’ve agreed to regular payments on your debts through a credit counsellor.

This note stays on your report for two years after you’ve paid off your debts, after that it disappears.

But while your debt management plan may impact your credit report negatively in the short-term, it can be a very beneficial way to get back on track from a long-term perspective.

If you look a few years ahead, may instead help you improve your credit score as you’re now in control of your situation.

Find out how long information stays on your credit report.

Conclusion

It’s easy to feel stressed when your finances have gotten out of hand. But many people who struggle with debt have found a way to avoid bankruptcy through Credit Counselling.

A professional Credit Counselling Agency will not only help you analyze your situation and create a sustainable budget for you but will also negotiate the terms with your creditors.

This will help you to find solutions that will help you get back on track.

Although debt management can harm your credit report from a short-term perspective, credit counselling is often a strategy that will improve your credit score over time.

Bankruptcy Canada is Canada’s top bankruptcy and consumer proposal information website.

We have been online for over 20 years.

We are proud to have helped more than 100.000 Canadians from every walk of life get a fresh financial start.

Get in touch and let us help you with your debt!