Understanding the Distinction: Credit Counselling versus Consumer Proposals
Debt consolidation options abound in today’s financial landscape, with Credit Counselling and Consumer Proposals being two of the most popular. While both have their merits, it’s crucial to understand their differences to make an informed decision. This article aims to clarify the distinction between Credit Counselling and Consumer Proposals by comparing these two debt relief options.
Credit Counselling: An Overview
Credit Counselling involves the consolidation of your consumer debts into a settlement plan that’s offered to your creditors. A credit counsellor facilitates the debt settlement plan, and once you start making payments within the plan, creditors generally cease their collection attempts.
Who Provides Credit Counselling?
Credit counsellors, often Accredited Financial Counsellors, provide this service. However, there isn’t a legal requirement for specific formal training or education to be a credit counsellor. This lack of regulation extends to both for-profit and not-for-profit companies offering credit counselling services. Therefore, conducting due diligence on the specific qualifications of the counsellor is highly recommended.
Consumer Proposals: A Brief Introduction
An alternative to traditional debt consolidation, a Consumer Proposal consolidates your debts, halts future interest and finance charges, and reduces the debt amount you have to repay. This means that a significant portion of your debts gets waived off.
Who Offers Consumer Proposals?
Only a Licensed Insolvency Trustee (LIT), formerly known as a Trustee in Bankruptcy, can file a Consumer Proposal in Canada. LITs are the only debt professionals authorised and endorsed by the Canadian government to provide legal debt solutions that can forgive virtually all types of debts.
Types of Debts that Credit Counselling and Consumer Proposals Can Consolidate
Both methods can manage general consumer debts, including those from credit cards, lines of credit, bank overdrafts, mortgage shortfalls, old utility bills, and payday loans. However, when it comes to government debts, only a Consumer Proposal or bankruptcy can help. These debts include:
- Canada Revenue Agency balances for income tax, GST, or payroll debt;
- EI debts;
- Student loans (Provincial or Federal);
- MSP debt;
- ICBC debt.
Comparison of Debt Repayment in Credit Counselling and Consumer Proposals
Credit Counselling
In credit counselling, you’ll need to repay 100% of your debt. The monthly payments are typically based on your debt amount and the time you need to pay it off (generally up to 5 years). However, there’s no guarantee that creditors will stop charging interest or reduce the interest rate. Moreover, some creditors may choose not to participate in the plan, requiring separate payments.
Consumer Proposal
On the other hand, Consumer Proposals reduce the debt you have to repay, often by 50-80%. They also halt the accrual of interest charges. As a result, the monthly payments under a Consumer Proposal are often much lower than those in a credit counselling plan or a bank consolidation loan.
Impact on Credit History
Both credit counselling and Consumer Proposals have a similar impact on your credit history. They can both take a maximum of 5 years to complete, and the impact on your credit rating is comparable in either option. A credit counselling program reflects on a person’s credit history for two years following completion, while a Consumer Proposal will be reflected on credit history for three years following completion or six years from the date of filing, whichever comes first.
Choosing the Right Debt Consolidation Method
Choosing between Credit Counselling and a Consumer Proposal depends on your specific financial situation and needs. Remember, choosing the right professional to guide you through your debt relief options, including debt consolidation, credit counselling programs, Consumer Proposals, and personal bankruptcy, is crucial.
Book your free confidential debt consultation today to find the best debt solution for your needs.
Conclusion
Understanding the difference between Credit Counselling and Consumer Proposals is vital when deciding the best course of action for dealing with debt. By comprehending each method’s benefits and drawbacks, you can make an informed decision that best suits your financial situation.
Remember, the key to successful debt relief is seeking the right professional advice and choosing the best debt consolidation method for your needs.
