When it becomes very complicated or even impossible to pay off your debts, consulting a consumer credit counsellor can help you find solutions to get out of this situation. Here is an overview of the services that they offer to borrowers who are struggling to deal with their payments.
Choose your counsellor carefully
There are serious credit counselling agencies out there, but there are also companies that settle for charging fees and promising the impossible, such as guaranteeing that they will reach an agreement with the lenders or restore a good credit rating quickly! Before contacting a consumer credit counselling agency, verify its reputation with established institutions, such as Credit Counselling Canada. You can also consult a counselling service offered by one of these associations, such as the Union des consommateurs.
Take advantage of the services of a credit counsellor
Consumer credit counselling agencies generally offer a range of services, including:
- Group courses on using credit wisely or how to make a budget and stick to it
- Personalized and confidential credit counselling sessions
- Debt management plans
Draw up a debt management plan
In certain situations, it’s possible to develop a debt management plan. Lines of credit, unsecured loans, and credit cards can be included in it. Generally speaking, mortgages, car loans, student loans, and debts owed to the Agence du Revenu du Québec and the Canada Revenue Agency are not covered. Secured debts are also excluded, since the lender may seize the property at any time in case of unpaid debts.
The role of the counsellor in the context of the debt management plan
The credit counsellor can draw up a debt management plan on behalf of the borrower. In other words, this is a proposal that they will present to the lenders and try to negotiate with them. For the borrower, this lets them consolidate their loans into a single monthly payment, the amount of which is compatible with their current income and situation. This approach is broken down into several steps:
- The counsellor familiarizes themselves with the situation and draws up an analysis.
- They develop a budget with the borrower and advise them on how to pay off their debts. Sometimes, they ask the borrower to sign a written commitment stipulating that they will not take out new loans.
- They approach the lenders to negotiate the interest rates and fees related to the different debts and an extension of the repayment period.
The impacts of the debt management plan
You should know that, in the short term, obtaining a debt management plan will negatively affect your credit score and can impact access to credit. However, in the long term, this solution lets you reduce your debts, clean up your financial situation, and improve your rating, as long as you follow the plan by making regular payments. At the end of the plan, it’s possible to apply for a secured credit card to rebuild your credit even faster.
Consulting a counsellor is one possible option when facing financial difficulties. But in certain situations, such as when a portion of the debt is tax-related, it’s preferable to turn to a trustee to draw up a consumer proposal or establish a personal bankruptcy process.