Credit Counselling Caution


Credit Counselling

Even a passive observer knows that consumer debt levels in Canada have reached record highs. StatsCan recently reported the ratio of household debt to disposable income to be 1.48, exceeding US household debt levels for the first time in over 12 years. If this disturbs you, it should.

Personal bankruptcies and property foreclosures are a common artifact of recessions. Reported bankruptcies and foreclosures have been on the rise since the recession took hold in Canada, and more people are turning to debt solution companies to help them solve their debt woes. In Canada, someone wishing debt relief can declare ‘bankruptcy’ or obtain a ‘consumer proposal’. In either case, you need a trustee to accomplish this.

Understanding how the debt recovery system works is your first line of defense to protecting your credit. With a consumer proposal, you pay more money to your creditors than if you had declared bankruptcy, but the benefit is that the ‘black mark’ stays on your credit history for only 3 years instead of the standard 6 years for a bankruptcy. In either case, a trustee would be in charge of your case. If you are considering either of these options, understand that you need to be properly represented by someone who has your best interests in mind. The key point here is that a Trustee is an officer of the court, and as such, is obligated by law to represent the interests of the creditors, not you.

Debt Management

Enter the Debt Management industry. In recent years, the number of debt management agencies in Canada has increased dramatically, providing many options for consumers wishing to relieve themselves of unwanted or out of control debt. But buyer beware, not all debt solution companies are made the same.

Debt management or “Debt Consolidation” companies operate by working for you, negotiating a lower amount of your debt service with your creditors, say paying out 35 cents to the dollar of debt owed, enabling you to ‘get out of debt’ for less. But debt management companies do little to repair the underlying issues that got you into the high debt situation in the first place, or create an environment that puts you back in good standing your creditors.

If you are thinking of hiring one of these companies, ensure that you receive proper debt counselling to remedy and future debt issues. Look for agencies that offer counselling, not just debt management or consolidation services. Make sure they have a long track record dealing with Canadians, and high success rate for their clients. Credit counsellors can address your debt habits, and provide solutions that will help you establish a budget, get your monthly payments back under control, and provide strategies that will help you restore your credit rating.

Above all else, look for agencies that are accredited to provide credit counselling. The Canadian Association of Credit Counselling Services website can help you search for accredited agencies in your province. (

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