We urge people to be very cautious when entering into a credit counselling service. The only time we recommend credit counselling is if you are solvent, your assets are greater than your debt, or if bankruptcy or a consumer proposal are too expensive. 100% of the time a consumer proposal will be cheaper for you than credit counselling.
Credit Counselling Defined
The term counselling is a huge misnomer in the industry. The amount of marketing behind this term leads people to believe that credit counsellors are trained in the art of making people happy and healthy. Well that is just not the case. Credit counselling agencies or companies generally take one course on how to deal with people's finances. They are good at budgeting and putting people on a payment plan.
Why they are called counsellors is beyond me.
What Is The Process?
Step 1 - Visit with a Credit Counsellor
There are two types of agencies. The first is not for profit. The second is for profit. Not for profit does not mean they are charitable. It just means they spend all their money in the company. Generally the not for profit agencies are funded by the credit card companies or banks, and can charge you lower fees. For profit agencies are not subsidized so generally charge you a fee for their service.
Step 2 - Choose a debt management plan
Ok so a credit counselling company will put together what is called a DMP or debt management plan. They will put together a statement of your affairs and then negotiate with the lenders, and put together a plan. The plan is typically up to a maximum term of 5 years, and includes all of your debt.
Pros and Cons
1. One Low Monthly Payment - if you have a lot of different creditors, the ability to consolidate the debts into one payment will save you tons of time and effort each month.
2. Reduced Interest - credit counsellors can typically negotiate a lower interest rate.
3. Collections Stop - if the lends agree to the DMP then they will stop calling you. But the ones that don't agree do not have to stop.
1. Expensive - DMP will be more expensive then a debt settlement or a consumer proposal
2. No forced acceptance - most creditors will accept but they are not forced to.
3. Credit rating - a DMP will show as an R7 on your credit bureau for 2 years after it is paid off.