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My debt is out of control. Should I get help through debt counselling?
Personal debt from loans and credit cards can make you feel hopeless and cause a lot of anxiety. It can also harm your credit rating.
Anyone can have a bad month, fall behind on bills, or miss a credit card payment. But how do you know when it’s time to get help? If you are repeatedly:
- missing credit or loan payments
- skipping payments on your mortgage, rent, bills, or car
- using one credit card or loan to pay for the other credit card
- being declined when applying for new credit
- paying interest only or service charges and total owing stays the same every month
- getting collection calls from your financial institutions about missed payments
These could be signs you are at your limit and need help from professional credit counselling services.
Debt counselling services can help you:
- manage your financial resources and debts.
- decrease your spending.
- develop a realistic budget.
- contact creditors to arrange smaller or easier payments for you, for example, through a debt management program.
There are many credit counselling services available, but not all of them are the same. There are for-profit and not-for-profit services. You must be careful if you choose a for-profit (private) credit counselling agency because sometimes, they can cost you more money and cause you to fall deeper into debt.
For-Profit Debt Consultants
Private debt consultants generally charge fees for their services and the initial consultation. They are not required to be a part of a trade association (although some are) which means they are unregulated. Unregulate and non-licensed debt consultants can be unethical, charge big fees disguised as “referral or administration fees,” and pressure you into making snap decisions. They can also offer you quick-fix solutions to pay off your debts faster that turn out to be false. Always do your research before committing to a service to ensure you are working with a trustworthy, certified financial professional.
Non-Profit Debt Consultants
Non-profits are members of trade associations and are regulated, meaning they must comply with standards. They are registered charitable organizations under the Canada Revenue Agency. Non-profit debt consultants generally do not charge any fees for their services. Some debt plans can require a small fee but are decided on your debt size and affordability or level of hardship.
To find an authorized Ontario counselling service, you can visit the following associations:
Types of Debt Management Options
Once you’ve done your research and found a trustworthy consultant, there are a few options they may recommend to you.
Consumer Proposal
A consumer proposal is a legal agreement between you and the creditors to pay off your debt without filing for bankruptcy. A Licensed Insolvency Trustee (LIT) will work with you to create a repayment plan for your debts. The repayment is a percentage of your overall debt based on what you can afford over a period of up to a maximum of five years. A consumer proposal will negatively impact your credit score and will remain on your credit record for up to six years. You can generally keep your assets as long as you follow the terms of your proposal.
Consumer proposals affect your credit score and can stay on your record for up to 3 years after you have paid off your debt.
Debt Management Plan (DMP)
A Debt Management Plan is a structured repayment plan offered through a debt counselling agency. The agency negotiates with creditors on your behalf to reduce interest rates on all your outstanding debt. While not legally binding, this arrangement can help you reach a more manageable repayment plan through one simplified payment schedule allowing you to pay off your debts over time without additional interest charges.
DMPs affect your credit score and can stay on your record for up to 2 years after you have paid off your debt.
Personal Bankruptcy
As a last resort, personal bankruptcy offers a way to eliminate most, if not all your debts. Declaring bankruptcy is a formal process overseen by a Licensed Insolvency Trustee, who works with you to sell off your assets to pay off creditors. Bankruptcy can provide a fresh start but it comes with consequences like a significant impact on your credit rating and the potential loss of certain assets. This is a last resort and should only consider it after exploring all other debt-relief options.
A bankruptcy stays on your credit record for up to 6 years from the day you are discharged. This means your credit score will drop to the lowest score with most Canadian credit bureaus. Low credit scores will affect possibilities with lenders, landlords, insurers and even employers.
To file personal bankruptcy, you will need to contact a lawyer:
For More Information
- Credit Counselling and Debt Settlement Services - This resource covers the differences between non-profit credit counsellors and debt settlement companies, how they work, the rules they must follow, and the legal rights of people who use their services. From CLEO (Community Legal Education Ontario).
- Collection Agency: Your Rights - This webpage explains what a collection agency is and what you should do if one contacts you. From Consumer Protection Ontario.
- Dealing with Debt: A Consumer's Guide - This booklet may help you decide whether or not you have a serious debt problem. It also gives some suggestions for solving your difficulties and avoiding them in the future. From the Office of the Superintendent of Bankruptcy.
- Ontario Association of Credit Counselling Services (OACCS) A directory of Ontario credit counselling services. From the Ontario Association of Credit Counselling Services.
- Monthly Budget Tracker [PDF] - This booklet makes it easy to track (record) your fixed and variable spending. Knowing how you spend your money is the first step in creating a realistic budget. From Credit Canada.
- My Money in Canada - This site provides information about Canada’s financial system and positive money management habits. Interactive exercises and checklists allow you to make informed choices and create customized financial plans. From Prosper Canada.
Last updated:
March 14, 2024
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