Don't be afraid of the credit counsellor
When the bills pile up, the phone rings with collection calls and the only way you can pay your credit card bill is with your line of credit (or not at all), you know you're in financial trouble. It can feel like all hope is lost, and you don't know where to turn for help. You've heard of credit counsellors, but you may be wary of trusting one.
How do you find a credit counsellor who's sound, and when should you seek a counsellor's help?
Here's a closer look at what credit counsellors do, what you should ask a counsellor and what to expect when you make an appointment.
There is no shortage of credit counsellors available, but some may be more helpful than others. According to the Financial Consumer Agency of Canada (FCAC) website, "Credit counsellors are not legally required to have any specialized training," so thoroughly research a potential counsellor.
Non-profit agencies are self-governed by three organizations:
- Canadian Association of Credit Counselling Services.
- Ontario Association of Credit Counselling Services.
- Credit Counselling Canada.
These agencies are all registered charities and, while they do charge fees for some services, they also receive the support of community partners, says William Moores, director of education and operations with the Canadian Association of Credit Counselling Services. Non-profit agencies are also accredited.
"The accreditation process requires that an agency meets a very high standard of service delivery," says Moores. "That's including the governance, their standards of operations and how they manage their client's situation."
In addition, individual financial practitioners should be accredited through Accredited Financial Counsellor Canada (AFCC).
"It's a three-year program that focuses on personal money management, financial counselling and debt management," says Moores. "So it's both the hard skills and the soft skills around the holistic approach to dealing with client circumstances."
To maintain their accreditation, AFCC professionals are required to complete at least 30 continuing education units in every two-year period.
For-profit organizations also self-govern, through the Canadian Association of Independent Credit Counsellors.
"There's no industry legislation other than some provincial legislation around licensing that's come out recently," says Brian Denysuik, president and CEO of Creditaid, a for-profit credit counselling agency. "We have to be licensed by the Consumer Protection Office."
In the province of Manitoba, where Denysuik practices, one of the requirements for a credit counseling license is an external financial audit.
What to ask
Ensuring that the organization belongs to one of the reputable organizations is only the start. "It's very important for clients to ask the right questions when they're looking for help," says Moores.
Denysuik recommends asking potential counsellors about their background and qualifications. Do they have any specialized training? Many credit counsellors have in-depth financial experience in the financial services industry as lenders, bankers, or mortgage brokers.
"We want people who can sit and analyze and dig deep to find creative solutions," Denysuik says.
Other questions to ask: How long have they been in business? Do they have any complaints registered against them? Check the professional's name, or the organization name, with the Better Business Bureau and the Consumer Protection Office.
Once you choose an agency that you might want to work with, ask to meet a counsellor to make sure it's a good fit. You want to be comfortable with the person you're working with. According to the FCAC, a reputable counselling agency will not charge for such a meeting.
"We form a relationship with our clients," Denysuik says. "We meet them. They get a phone call from us if things aren't going well. They phone us."
"If the answers aren't giving you that sense of relief and comfort that you expect, then it should really raise some eyebrows," says Moores. Move on to another counsellor or agency.
What to expect
A credit counsellor will take an unbiased look at your finances and present you with all your options, then tell you the consequences of each one.
The first step in credit management is getting a snapshot of your current financial situation.
"They'll look at your personal financial situation - the income you have, the debt load you have and what your goals are," Moores says. Then they'll do an assessment to bring your finances into sharper focus and look at what options you have. Do you have a home that can be refinanced? Can you downsize your lifestyle - your house or your car?
Before going to any extreme measures, though, "The first option is actually some solid, good budgeting," says Denysuik. "They walk out of our office with a complete budget and a six-step approach to how to track their money."
This is what many people who meet with credit counsellors need, Moores says.
"So many of the clients who come in, they think, ‘I'm lost. I can't do anything about this,'" Moores says. "But after speaking with a counsellor, getting some rudimentary tips and tools and looking at their budget, they find that they can just go home and work through it themselves."
Non-profit and for-profit agencies generally do not charge for budgeting and assessment services, but verify that before you attend your appointment.
If clients can't work out their debt problems through budgeting, another option may be a debt management plan.
"A debt management program is for a situation where a client is having a lot of difficulty in managing all of their debts and mediating between their creditors," Moores says. The credit counsellor acts on the client's behalf and talks with their creditors to work out a repayment program that the client can use for several years.
This is not the same as a debt settlement plan, in which an agency will negotiate a deal with your creditors so you have to pay only a percentage of your debt. Be wary of agencies that offer debt settlement plans, as both Moores and Denysuik say they are only offered in rare circumstances.
With a debt management plan, the repayment is 100 per cent of the amount owed, but the creditor may lower the amount of interest over that period of time. You would make a monthly payment to the agency, which would include any fees, and the agency would pay your creditors on your behalf.
However, Denysuik advises not to immediately jump at a debt management plan. "You need to evaluate," he says. "You need to review. You need to compare."
He says it's important to make sure you will have access to all of your payments information. For instance, because the agency will pay your creditors on your behalf, you may not receive monthly statements. Ideally, you will have online access so that you can verify the payments each month.
Fees vary depending on the province and the agency.
"Because the debt management program is more intensive and lasts longer, there can be client fees based on the length of time," Moores says, but a non-profit agency would never turn someone away who couldn't pay the fee.
With for-profit agencies, the fee is regulated by the province. "If the client cash flow can't handle that - and we'll know right away because they have a detailed budget - then we're not going to put them on that," Moores says.
If you can't manage a debt repayment program, it may be time to look at bankruptcy or a consumer proposal. For these, a credit counsellor will refer you to a bankruptcy and insolvency trustee.
"Always treat bankruptcy as the last option," says Moore. "When you're in that crisis moment and you feel you have no other options, you're just looking for the easiest way out, and that's when sometimes you can be taken advantage of.
"Find out what your options are. You're going to require some assistance, but you can get out of that situation. There is a way to move forward and to get to your goal. It doesn't have to carry with you for life."See related: Get to know your debt help professionals, 5 signs you need to get debt help, 5 factors in choosing a debt consolidation plan
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