If you find yourself struggling with debt repayment or maintaining up-to-date payments, you might want to consider getting help from a credit counsellor. This process will not affect your credit score and can provide numerous benefits.
Credit counselling agencies offer a wide range of services, including:
- Individual counselling.
- Group education on budgeting and wise credit utilization.
- Debt management plans.
Identifying a Credit Counselling Agency
Both non-profit organizations and profit-oriented businesses offer credit counselling services. It’s essential to do thorough research and identify a trustworthy organization and a qualified counsellor. Understand their services and the associated costs.
Verifying the Agency’s Credibility
Ensure that the agency is a member in good standing of a provincial or national association, as these bodies require their members to adhere to specific professional standards.
In Quebec, budget and credit counselling services are typically provided by Associations cooperatives d’economie familiale (ACEF). You can find the ACEF member list through the Coalition des associations de consommateurs du Quebec (CACQ) (in French only).
Research the agency’s background for any serious or unresolved complaints, including late payments to creditors or misleading advertising. You can check for complaints about the agency with organizations like the Better Business Bureaus and l’Office de la protection du consommateur (Quebec).
Making Informed Decisions
Some companies offering help with debt repayment or credit repair can be misleading. It’s essential to be cautious and remember that if something seems too good to be true, it probably is.
Some agencies or companies might falsely claim that they can quickly solve your debt problems for a fraction of your debt or quickly and easily fix your credit score. They might also falsely advertise their services as being part of a government program.
Remember:
- You may still have to pay fees even if your creditors refuse to negotiate with the agency.
- It’s impossible to change or erase information that’s part of your credit history unless the information is inaccurate.
- Improving your credit score requires time.
- You must demonstrate to your creditors that your habits have improved and that you’re repaying your debt on time.
- Agencies or companies should never coerce you into using their services.
- If you’re unsure whether a company is part of a government program, contact the government department responsible for the program and ask them to confirm the company’s claims.
Understanding the Agency’s Services and Costs
The services that credit counselling agencies offer and the fees they charge can vary significantly. Ask specific questions about their services to help you find an agency that is right for you:
- Is the first consultation free?
- What services does the agency provide?
- Will the agency provide you with a written proposal describing how they will help?
- What type of support will the agency provide to help you improve your money management skills?
- Will the agency provide you with monthly statements of payments?
Evaluating the Counsellor’s Qualifications
Credit counsellors aren’t legally required to have specialized training. However, many credit counsellors have some training. When getting help from a credit counsellor, ask about the counsellor’s qualifications, including their education, specialized training, and years of experience.
The purpose of the training is to equip counsellors with the unique skills required to assist consumers with their personal finances.
Feeling Comfortable with Your Credit Counsellor
If the agency’s services seem to meet your needs, ask to meet with a counsellor to see if it’s a good match. Trust in the counsellor’s opinion and judgment is critical. If you’re not comfortable, ask for a different counsellor.
Debt Management Plans
A debt management plan is an informal proposal your credit counsellor makes to your creditors on your behalf. It consolidates your debts into one affordable monthly payment. In some cases, you may not have to continue to pay interest on your debt. You’ll usually have to repay 100% of your debts.
Before enrolling in a debt management plan, you’ll meet with a credit counsellor who will assess your situation, help you create a budget, and provide tips on dealing with your debt. If you decide to sign up for a debt management plan, they’ll contact your creditors on your behalf.
Your credit counsellor will ask your creditors if:
- They’ll reduce or eliminate the interest rate or fees on your debt.
- They’ll extend the period in which you have to repay your debt.
Some of your creditors may not accept your debt management plan. In that case, your credit counsellor will usually suggest you make payment arrangements directly with those creditors.
If your creditors accept the debt management plan, you’ll then make regular payments to the credit counselling agency. The agency will use your payments to pay off your creditors according to the plan. Keep in mind that creditors can still use collection agencies to recover the money you owe. Your credit counsellor can ask creditors to stop, but they have no legal power to make them stop.
Things to Consider Before Signing Up for a Debt Management Plan
Before you enroll in a debt management plan, consider the following:
- Cost: Understand the associated fees, which may include an initial setup fee, monthly administration fee, application fee, membership fee, upfront fee, or fee for each creditor. Ask if they’ll reduce or eliminate fees if you can’t afford to pay them.
- Savings: A lower interest rate will save you money. But the credit counselling agency may charge you a fee for its services. Compare the agency’s fees with what you’d save in interest on the debt management plan. If the agency’s fees are higher than what you’d save, you may want to seek help from other sources.
- Coverage: Debt management plans may not cover all types of debt. You’ll need to continue to make payments on any debt not included in your debt management plan. They usually cover debts, such as credit cards, personal lines of credit, and unsecured personal loans. Debt management plans usually don’t cover secured debts like mortgages and car loans. Make sure that the credit counsellor explains exactly which of your debts the program will cover.
- Responsibilities: When you’re following a debt management plan, make sure to disclose all your debts, make your payments on time, and avoid taking on any additional credit.
- Review: If you decide to sign up for a debt management plan, carefully read the agreement before you sign it. Make sure you understand what costs you’ll have to pay and what services you’ll receive. Ask questions if you don’t understand any of the terms and conditions. Keep a copy of the agreement.
Monitoring Your Debt Management Plan
Ask the agency for regular written status reports on your plan and receipts of all transactions involved with the debt management plan. This will provide you with proof that the agency made your payments. While you’re following the plan, companies you owe money to may stop sending you monthly statements.
Review your status reports or monthly statements carefully. Ensure the agency is paying your creditors on time to avoid any late fees or negative entries on your credit report.
You can also monitor your progress by reviewing your credit report, which includes information on whether you’re making regular payments.
Learn how to get a copy of your credit report.
Evaluating Your Options
Before making a decision, talk with different sources to see how they can help with your situation. If you’re facing severe financial problems, consider working with a Licensed Insolvency Trustee, a professional licensed by the Office of the Superintendent of Bankruptcy to handle debt problems under consumer proposals and bankruptcies.
Find a Licensed Insolvency Trustee.
When meeting with trustees, they’ll first assess your financial situation for free. If it suits your financial situation, you could consider working with them for a consumer proposal or bankruptcy.
Learn more about consumer proposals.
Learn more about bankruptcies.
To help you decide the best option for your situation, consider the following:
- How much of your debt will be repaid?
- What type of debts will be repaid?
- How long you’ll be making payments?
- What your monthly payment will be?
- What happens if you can’t make a monthly payment?
- What will happen if your financial situation changes and you need to reduce your payments?
- Can creditors or a debt collection agency continue to contact you?
- What will happen to your assets?
- What will happen to your credit report?
- How much you’ll pay in fees?
- Can a creditor change their mind and withdraw from the agreement?
Compare the advice you get from each reputable source before you decide which option is best for you.
