Debt Relief

Credit counselling is a process that helps people deal with their debts through budgeting, education, and other strategies. The goal is to reduce and eventually eliminate debt.

What is credit counselling?

• Credit counselling typically involves speaking with a credit counsellor or credit counselling agency. Through one-on-one sessions or group courses, a credit counsellor helps you understand your debt, make a budget, and give you advice and tips on using credit wisely.
• The goal of credit counselling is to teach and help you end up in a situation where you can repay your debts and eventually eliminate them.
• Some credit counsellors may suggest that you sign up for a Debt Management Plan. A Debt Management Plan is an informal arrangement your counsellor will make with your creditors to reduce or eliminate interest or give you more time to repay what you owe. Usually, you will still have to repay 100% of your debts.

What debts can be included?

• A credit counselling service can help you manage all your debts and provide you with advice to help you stick to a budget and repay your debt more effectively.
• A debt management plan is an informal arrangement made between a credit counsellor and your creditors. The goal of these plans is to make it easier for you to repay your debts.

Pros and cons of credit counselling

• One potential negative of credit counselling is that typical credit counsellors are not required to complete any specific training. Many have some training, but it’s essential to ask about the counsellor’s qualifications to find out for sure.
• Both for-profit and not-for-profit agencies offer credit counselling. Before you work with a counsellor, find out what services they provide and how much they charge.
• Speaking with a credit counsellor will not affect your credit rating, but your credit score will decrease if you enroll in a debt management plan.
• Credit counselling does not reduce the overall amount of debt you owe. A credit counsellor may be able to convince your creditors to reduce the amount of interest being charged or give you more time to pay your debt, but you will still need to pay 100% of what you owe.
• Creditors have no legal obligation to work with a credit counsellor. A credit counsellor cannot stop a creditor from taking legal action if you do not make the required payments. They can ask the creditor to stop the legal action but have no legal power to stop wage garnishments or other collection actions.
• Credit counselling could be a good idea if you can make your payments but wish to have the interest rate reduced or to have more time to pay off your debts. However, if you’re unable to pay what you owe, it could be a better idea to seek another debt relief option, such as a Consumer Proposal.

How much does credit counselling cost?

• There are both for-profit and not-for-profit credit counsellors. The fees for credit counselling will vary depending on the agency.
• If you decide to enroll in a Debt Management Plan, there may be additional fees. It’s important to compare these fees with the amount you may save by agreeing to the plan to determine if you’re actually saving money.

How does credit counselling compare to other debt relief methods?

• Credit counsellors are usually not able to reduce the amount of debt you have to repay. Even if you enroll in a debt management plan, you will still have to pay 100% of the debt you owe. With a Consumer Proposal, for example, you will pay less than you owe.
• A debt management plan is not a legal process. It is an informal process, and your creditors must agree to work with the credit counsellor. If any creditor does not, you will have to pay them what you owe based on the loan’s original terms.
• Credit counsellors have no legal power to stop collection actions such as wage garnishment. With a Consumer Proposal or bankruptcy, creditors are legally unable to contact you, they cannot take legal action against you once the process begins, and wage garnishment must stop.

A debt consolidation loan is designed to bring all your loans into one single payment. If done correctly, debt consolidation can save you money in interest.

What is debt consolidation?

• A debt consolidation loan is a loan or line of credit used to pay off several debts with higher interest rates. The goal of the process is to leave you with only one monthly payment. A consolidation loan with a lower interest rate than the debts you are consolidating will save you money in interest.
• You will still need to pay 100% of the amount you owe, plus interest, but by reducing your interest rate and consolidating your debt it becomes easier to pay off your debt.

What debts can be included?

A debt consolidation loan can include many types of debts, but each loan is different. You will need to confirm which specific debts you’ll be able to pay off with the loan provider.

Pros and cons of debt consolidation

• Debt consolidation does not reduce the amount of money you owe. You will still need to pay back 100% of what is owed plus interest. Debt consolidation may lower your interest rate and save you money.
• It may be challenging to get a consolidation loan with a lower interest rate, especially if you have poor credit. You must have an acceptable credit score and prove that you will make your payments to get a consolidation loan.
• Debt consolidation can be a good idea for people who owe several different debts and find it challenging to track how much they owe and when they need to make payments. However, if you have trouble making payments due to a lack of funds, debt consolidation may not save you much money unless you get a loan with a low-interest rate. Even in this case, you will need to pay more than the minimum monthly payment to save money with a consolidation loan.

How much does debt consolidation cost?

• Different lenders offer different loans, each with its own interest rate.
• It is essential to look at various lenders and financial institutions to find a loan with the lowest possible interest rate. Beware of high interest rate lenders which may only delay the inevitable.
• Some institutions will offer different interest rates on a debt consolidation loan than on other products (such as a line of credit), so you may need to shop around.

How does debt consolidation compare to other debt relief methods?

• Debt consolidation simplifies the process of paying your debts since you will only have one monthly payment rather than several due at various times throughout the month. It can save you some interest as well. However, a debt consolidation loan does not reduce the amount you will need to pay.
• You must have an acceptable credit score and income to receive a consolidation loan.
• A lender has no obligation to give you a loan or give you a loan that will save you money.
• As a comparison, a Consumer Proposal stops interest entirely and reduces the amount you are expected to repay. You could pay up to 70% less with a Consumer Proposal.

The debt settlement process involves negotiating with your creditors and offering them a lump sum to eliminate your debts. Creditors are not required to work with a debt settlement company.

What is debt settlement?

• Debt settlement involves working with a debt settlement company, and these are usually for-profit companies. If you agree to work with one, they will offer your creditors a lump sum to eliminate your debt. This sum is usually lower than your total debt. If the creditors agree, you will make a payment to the debt settlement company, and they will use this money to pay your creditors.
• A debt settlement company takes its fee from the payment you make. The company may still charge you even if your creditors do not agree to the arrangement.
• Creditors do not have to agree to the settlement. You will be responsible for paying any creditors that do not agree. If you do not pay these creditors according to the loan’s original terms, they can take legal action against you.
• A debt settlement company may request that you sign a power of attorney to give them the ability to handle all communications with your creditors. It is crucial to fully understand this process before you agree.
• If your creditors agree to the debt settlement arrangement, you will make a payment to the settlement company, and the company will pay off your creditors, eliminating your debt

What debts can be included?

In general, unsecured debts can be included in a debt settlement. This includes credit card debts, lines of credit, payday loans, and other such debts. Government student loans and tax debts cannot usually be included, nor can secured debts like car loans and mortgages.

Pros and cons of debt settlement

• Debt settlement companies are usually for-profit businesses, and their fees are not regulated. Many charge fees even if your creditors do not agree to negotiate.
• Some debt settlement companies may delay paying your creditors or suggest you do the same. This is often a negotiation tactic. However, missing payments or making payments late can significantly hurt your credit score and potentially open you to legal action. Debt settlement companies cannot prevent legal action such as wage garnishment.
• A debt settlement company may be able to convince your creditors to accept less, but they may also charge a high fee. It is up to you to determine if this process saves you money and makes financial sense.
• Some debt settlement companies do little more than charge you an unnecessary fee before referring you to a trustee who helps you file a Consumer Proposal. Save your money and go directly to a Trustee who never charges upfront fees.

How much does debt settlement cost?

Costs of debt settlement are not regulated. Most debt settlement companies operate for-profit and charge fees for their services. You may be required to pay upfront fees in addition to monthly fees. You may still have to pay even if your creditors do not agree to the settlement.

How does debt settlement compare to other debt relief methods?

• Debt settlement companies may be able to convince your creditors to accept less than is owed to them, but creditors have no legal obligation to work with them.
• Since debt settlement is not a legal process, a debt settlement company cannot stop phone calls from creditors or prevent legal action such as wage garnishment.
• As a comparison, a Consumer Proposal is also a process that can reduce the amount of debt you are expected to repay. However, a Consumer Proposal is a formal legal process with which only a Licensed Insolvency Trustee can assist. Trustee fees are regulated by the federal government, and a Consumer Proposal can stop creditor calls and legal action.

Which debt relief option is right for me?

Each person’s financial situation is unique. The debt relief option that is right for you will depend on several factors, including your income, how much debt you have, the assets you own, how much interest you are being charged, and many other aspects. A consultation with a Licensed Insolvency Trustee can help you make an informed choice to deal with your financial difficulties.

Which debt relief option is right for me?

There are many different debt relief options available. A Licensed Insolvency Trustee can provide you with information and advice about the different options. Arranging a consultation with a trustee is an excellent way to learn more about how you can solve your debt problems.

What does a Licensed Insolvency Trustee do?

• Licensed Insolvency Trustees (LITs) help people understand their debt relief options and become debt-free. LITs are federally regulated professionals who are licensed by the Superintendent of Bankruptcy in Canada. Trustees are the only professionals in Canada who are authorized to administer government-regulated insolvency proceedings such as Consumer Proposals and bankruptcies.
• Licensed Insolvency Trustees are federally regulated. This means they are subject to ongoing oversight by the Office of the Superintendent of Bankruptcy. To receive and hold a license, a trustee must adhere to federal standards of practice, such as the Code of Ethics for Trustees.
• Licensed Insolvency Trustee fees are regulated by the federal government, and trustees do not charge for the initial consultation. Contact us today to arrange for a free consultation. We can help you stop collection calls, wage garnishments, and high-interest charges and give you a plan to reduce your debt.