Credit counselling is a much used, little understood term, that various companies in Canada now use to describe a multitude of debt relief solutions. Some offer great services, it doesn’t really matter what they call it. Other ‘credit counselling’ agencies are purposefully confusing readers about the product they offer because they know what they provide is not the best solution for the situation. How do you review the different credit counselling agencies or services and know which to choose?
Here are 7 questions you need to consider to help you review any credit counselling program you consider:
1) Know exactly who you are dealing with. This may seem obvious, but it is not. Unless you ask there’s often no way to tell a not-for-profit credit counselling agency from a for profit debt consultant or no way of knowing if they are professionally accredited. You want to know specifically if the credit counselling company or agency is a member of either the Canadian Association of Credit Counselling Services or the Ontario Association of Credit Counselling Services AND if your individual counsellor is certified.
2) Find out what it will cost and what you receive. A properly documented program will show you in detail how much you are expected to pay each month and where that money is going. You should never pay upfront fees. Know exactly what you will pay each month, for how long and what will be done in exchange for those payments.
3) You don’t need to pay for a referral. You should also never have to pay a referral fee to talk to a trustee about bankruptcy or a consumer proposal. Most for profit credit counselling agencies are now heavily advertising consumer proposals. This is because they know it is a better solution but they want to get you in the door, collect a processing fee then refer you to a trustee to file your proposal. While I’m all for competition (there are a lot of trustees to choose from) you should not need a middle man between you and your trustee.
4) Understand the program. Credit counselling programs are an excellent way to work through most financial problems, but they won’t work for everything. For example, CRA (formerly Revenue Canada) cannot participate in a Debt Management Plan offered through legitimate credit counsellors. Credit counsellors also don’t have much luck with payday loans – creditors are not compelled to deal with a credit counsellor. There are other types of debt that are problematic for credit counsellors – make certain you understand how the program works and which, if any, of your debts will be excluded.
Also understand what you will be settling. A Debt Management Plan requires that you pay back your debts in full. If you cannot afford to do this, your next best option is a consumer proposal (and as I said before go directly to your Trustee, you don’t need an intermediary).
5) Communication with your creditors. Know who is going to speak to your creditors and when are they going to do so. There are two things you should watch for.
- Agencies who collect money for a period of time (collecting a ‘fund’) but don’t contact your creditors until you’ve developed a large enough lump sum to ‘talk’;
- Agencies who collect a fee only to refer you to a trustee to file a consumer proposal. They will never talk to your creditors so no, they are not getting you a better deal.
Before you sign any documents, make sure you understand who will be contacting your creditors and when they will do so.
6) Ask who will be handling collection calls. In a debt management plan, bankruptcy or consumer proposal your credit counsellor or bankruptcy trustee will deal with the creditors under the program. In the case of a bankruptcy or consumer proposal that means all of your creditors. In a debt management plan only those participating in the plan will be the responsibility of your counsellor. In other questionable ‘programs’, you will likely continue to have to deal with unwanted calls from collection agencies or your creditors.
7) Will it work? You’ve worked through points 1 to 6 and it is time to make a final decision to engage the services of a credit counselling agency or not. The final question to ask is whether or not the solution is going to work for you? By this point you should have prepared a detailed monthly budget with your credit counsellor – does it appear reasonable? Can you live with it over the next 4 or 5 years? Have you identified any debts that cannot be included and have you budgeted properly to deal with these debts outside of the program? Have you left yourself any “wiggle” room? It won’t serve any useful purpose to begin a program that in 6 months to a year you cannot continue – it means whatever you pay in those 6 months to a year will be thrown away.
Originally, credit counselling services referred to the recognized not-for-profit agencies that were set up to help individuals solve their financial problems, without having to resort to a formal procedure under the Bankruptcy and Insolvency Act ( consumer proposal or personal bankruptcy). More recently the term has been hijacked by the debt settlement industry by agencies that often charge people fees and then end up referring them to a bankruptcy trustee to actually sort out their money problems.
I am still a fairly big proponent of traditional credit counselling. In fact, we work quite a bit with credit counsellors ourselves. We engage the services of these agencies to provide mandatory bankruptcy counselling for some of our offices and we refer people for whom bankruptcy or a consumer proposal is not a good option. The not-for-profit agencies that we deal with are also equipped to address much more than financial problems – they have counsellors for gambling and substance issues, as well as general wellness and family counsellors. This is important because financial problems don’t occur in a vacuum. In many cases money problems are either brought about or made worse by some underlying issue in the home. Full spectrum not-for-profit counselling agencies are an excellent resource to deal with all of the issues affecting a household.
The point of all of this is to caution you to be careful. Not-for-profit credit counselling is an excellent option to deal with your debts if you consider carefully the seven points I have set out above. If you do then you will know if credit counselling will get you where you want to be – debt free and in control of your finances. It is a great feeling and one everyone should strive towards.