Credit Counselling Services In Canada And Your Credit Report

Before a consumer makes the decision to enter into a credit counselling service program in Canada

, it is most important to understand the long term implication to their credit.

There are many options available to consumers who struggle with debt and some pose greater implications to a consumer's credit report than others. With all the choices available, unless you owe less than $7,000, credit counselling programs are the least attractive.

Credit counselling services are "not for profit" because they rely on donations from the big banks to operate. In many cases, the consumers are indebted to these very same big banks. Why would banks fund organizations who effectively allow consumers to pay less than what was originally contractually agreed upon? With all the debt relief options out there, credit counselling programs put the most money back into the coffers of the big banks.

Credit counselling involves the credit counselling agency arranging a reduced monthly payment to your creditors over an extended period of time (4-5 years). The result to your credit is horrendous. When a consumer enters into a credit counselling program, all of the ratings on their credit report turn from a "1" to a "7" and remain that way for 3 years from the date the credit counselling program has been completed.

Credit counselling services in Canada also have no formal authority to stop collection action on the part of your creditors.

If you have reached a point where you owe more than $7,000 and you can no longer make your minimum payments, keep in mind that there are other programs that have been made available by the Federal Government. These programs will result in more favourable outcomes for the consumer than credit counselling.

These programs provide immediate protection to consumers who have unsecured debt. What this means is that if the debt has gone to collections or the consumer is being sued, these programs can legally stop all collection action.

Debt settlements that are arranged are "final settlements", so while they involve low minimum payments over 3, 4, or 5 years, if the consumer's financial situation improves she can pay the balance of the settlement in full and thus begin the process of rebuilding her credit. Debt settlement also impacts credit for 3 years from the date it is paid in full, however, you can actually pay it off early.

All in all, consumers are looking for solutions to deal with their debt, solutions that don't involve bankruptcy. What is important is educating yourself to fully understand what is out there and the possible implications for you when choosing an option that provides debt relief. Hiring a Financial Consultant/Advisor to guide you through your options is often an excellent choice.

by: Michael Goldenberg, President, DebtCare Canada

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