Credit Counselling

How do I get out of debt? Credit counselling might be the solution for you. We do urge caution, as there are many misconceptions about credit counselling. Be extremely wary of credit counselling companies.

Is credit counselling a quick fix?

Definitely not. Credit counselling is not a quick fix. It takes a long time as you will (in all likelihood) be paying back your full debt. And contrary to their claims, it will negatively impact your credit rating.

Will credit counselling enable me to recover from debt more quickly than bankruptcy or a consumer proposal?

Bankruptcy may well let you recover more quickly than credit counselling. While credit counselling may land you with a less “bad” credit rating (R7) than bankruptcy (R9), it’s splitting hairs. Lenders look at those ratings with the same critical eye. It’s all bad.

What are the prerequisites to receive credit counselling?

None, if you’re just looking for advice. But if you want a Debt Management Program (DMP), you need to have a regular job with a good income.

Will I get a break on the amount I owe?

Usually not. Their income depends on what they can collect from you, so in reducing your debt they are reducing their profit. Not a good business model. You will repay the full amount of your loans, though you might get a reduced interest rate.

Will this solve my problem with all the collectors that are after me?

Lenders may or may not agree to the “Debt Management Plan” (DMP). (With a consumer proposal, lenders vote individually and the majority determines the acceptance of the proposal. If the majority accept the proposal, then all are legally bound by it.)

Will the calls from collectors finally end?

Lenders who do not agree to the Debt Management Program (DMP) can continue with harassing phone calls and wage garnishment. When you enter into a government-approved program, those things stop.

Are credit counselling companies lenders?

The Debt Management Program (DMP) is the equivalent of getting a consolidation loan, just with a middle-management level sitting between you and your debtors. They typically have relationships with lenders (sometimes on their Board of Directors), and while the credit counselling companies don’t actually lend or borrow funds, they will manage your the conversation between your debt and the lender.

Who might sit on the Board of Directors at a credit counselling company?

Just a point of interest, the Credit Counselling Services of Toronto (CCST) has the following companies represented on their board of directors:

  • MasterCard Canada, Inc.
  • Royal Bank of Canada
  • CIBC National Collection
  • Chase Card Services, Sears Portfolio
  • MJR Collection Services Limited
  • Canada Mortgage & Housing Corporation
  • Credit Union Central of Ontario
  • Equifax Canada Inc.
  • Trans Union of Canada Inc.
  • Wells Fargo Financial Retail Services
  • Sears Business Solutions
  • The Investment Funds Institute of Canada
  • Dynamic Funds

If you think there’s not much room for advocacy on behalf of the common, destitute and struggling citizen, you’re right.

How do credit counselling agencies earn their money?

The credit counselling companies, for- and non-profit alike, get paid a percentage of what they collect from the banks/lenders. The more they collect, the more they earn. Which ultimately means that credit counselling companies are not acting in your best interest.

What's the difference between non-profit and for-profit credit counselling companies?

From then end-user perspective, not a whole heck of a lot. Non-profit credit counselling companies rely in part on an incoming flow of revenue from creditors in the form of charitable donations; for profit (private) companies are incorporated profit-driven businesses that depend on stream-lined efficiencies to manage DMPs, and depend primarily on client fees for their profits. Like the non-profits, they are also able to earn a commission from the lenders. So really from an end-user perspective, there’s not much difference between the two.

Can I used my credit cards while I'm in the process?

You will not be able to use any of your credit cards or access any of your lines of credit. (Same applies to bankruptcy and consumer proposals.) But discuss it with your credit counsellor. This process is not regulated like the government programs are: they might choose to not include that particular card in your file.

What? It's not a regulated industry in Canada?

Nope. There are no laws in Canada regulating the industry. “You takes yer pick, and you takes yer chances.”

So what will it cost me?

Fees typically include a $25 set-up fee and a monthly fee (individually determined) for the duration of your payments. Non-profits and for-profit fees are competitive. There’s not much difference between the two.

Is there a report on the industry in Canada?

Funny you should ask! A report looking at Credit Counselling companies in Canada was conducted in 2007 and is available at The Public Interest Advocacy Centre (PIAC). The Financial Consumer Agency of Canada (FCAC) also has a page dedicated to credit counselling. Interestingly, the FCAC does not discuss bankruptcy or consumer proposals as viable strategies for debt management.

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