Consumer Publications - Tip Sheets

Getting Help from a Credit Counselling Agency

What are credit counselling agencies?

Credit counselling agencies provide a range of services for people in financial difficulty. One of the most common services they offer is help with finding the best strategy to pay off your debt through what is called a "debt management program."

Credit counselling agencies can also offer you one-on-one counselling, group courses and seminars on topics such as:

• how to make budget and stick to it
  
  
• how to improve your cash flow
  
  
• how to use credit wisely
  
  
• how to handle unexpected changes to your income (such as a job loss)
  
  
• how to improve your credit report and credit score.

Many agencies also have tools such as budget templates, debt calculators, tip sheets and other reading material to help you better manage your money.

You may have to pay fees to a credit counselling agency for their services. The amount of these fees varies from agency to agency. Provincial and territorial governments are responsible for the regulation of credit counselling agencies and the investigation of consumer complaints.

Help to pay off your debt: debt management programs

Credit counselling agencies can help you find the best strategy to pay off your debt with a debt management program. Once you are enrolled in such a program, a credit counsellor will contact the companies to which you owe money (called your "creditors"), explain that you are on a debt management program and ask for their cooperation. Creditors usually agree to cooperate with the counsellor in putting your debt management plan to work. In some cases, your creditors could decide to reduce or eliminate the interest rate and/or fees on your debts.

To sign up for a debt management program, you will usually have to sign a contract with the agency. The contract will specify that you will be asked to make regular payments to the agency. In turn, the agency will use those payments to pay off your creditors according to the plan the counsellor has set up for you.

It is important to understand that not all types of debt are covered by this type of program. For example, secured debts (those guaranteed with an asset, like a car loan or a mortgage), are not covered because the asset that secures the loan can be re-possessed by the creditor if you don't make the required payments. However, unsecured debt (those not guaranteed with an asset, such as credit cards or lines of credit) are covered. Make sure that any credit counsellor you speak to explains exactly which of your debts the program will cover.

What happens to my credit report/history?

A credit report is a snapshot of your credit history. It lists your debts with your creditors. Your creditors send this information on a regular basis to credit reporting agencies to show whether or not you are making your payments on time. Credit reporting agencies, also known as credit bureaus, are businesses that collect, organize and maintain credit information about any individual in Canada who has borrowed money or used credit.

Entering into a debt management program is completely voluntary and you should not feel pressured to participate without considering all of the implications.

While you are on a debt management program, there will be a note on your credit report to show that you are making regular payments to creditors through a special arrangement with your credit counsellor. During this time, you will usually not have access to more credit.

After you have completed your debt management program, you will be able to access credit again. However, for the next two or three years, your credit report will indicate that you used the services of a credit counselling agency to help repay your debts. During this period, if you give creditors, landlords or employers permission to access and view your credit report, they will also see this information.

Review your options before getting started

Before you seek the services of a credit counsellor, openly discuss your financial situation directly with your creditors and with your financial institution. They may offer to consolidate your debts into one loan instead of several, or they may be able to offer you a lower interest rate product.

You should also seek advice from several reputable sources, such as financial advisors, credit counsellors, trustees in bankruptcy or insolvency lawyers. Meet with them and discuss what options are appropriate to your circumstances. They may suggest that you explore other community and professional services before making a final decision.

If you decide to sign up for a debt management plan with a credit counselling agency, look at the costs involved. While on the plan, your creditors may help you reduce your debt by giving you a lower interest rate ― which will save you money. But the agency will charge you for its services. Compare the agency's fees with what you would save in interest if you were on the debt management plan. If the agency's fees are more than what you can save, you could be better off seeking help from other sources, such as the ones outlined above.

Shop around and ask questions before choosing a credit counselling agency

It is important to shop around before signing a debt management program agreement, since services and costs vary greatly between agencies. You'll want to ask the following questions:

Services

• What services does the agency provide?
  
  
• Will they provide a proposal in writing describing how they will help you personally?
  
  
• What type of support is given to help you learn better money management?
  
  
• Do they provide you with monthly statements of payments?
  
  

Costs

• Which of the following fees apply when entering into a debt management program:
  
  
  • initial set-up fee
    
    
  • monthly maintenance fee
    
    
  • application fee
    
    
  • membership fee
    
    
  • upfront fee or fee for each creditor?
    
    
• Will fees be reduced or eliminated if you cannot afford to pay them?

Licenses and qualifications

• What are the agency's qualifications and are they properly licensed?
  
  
• Is the agency accredited by Credit Counselling Canada or a provincial association? Does it belong to the Better Business Bureau (BBB) (or l'Office de la protection du consommateur in Quebec)?
  
  
• What are the qualifications of the credit counsellors?

If the credit counselling agency seems to meet your needs, ask to meet with a credit counsellor so you can see if there is a good fit. Any reputable credit counselling agency will not charge for this.

Find a reputable credit counselling agency

Before dealing with any credit counselling agency, make sure it is a reputable organization. In particular, look closely at its advertising. Beware of any agencies who claim they can fix credit or repair your credit report. It's not possible for them to change or erase accurate information in your credit report. The only way to improve your credit rating is to show your creditors that your payment habits have improved and you are being responsible with paying back your debt.

Next, verify the company's reputation. You can find out if an agency is a recognized member in good standing of a provincial or national association such as Credit Counselling Canada, which requires its members to maintain specific standards of practice. You can also check with the Better Business Bureau (BBB) or l'Office de la protection du consommateur (in Quebec) to find out whether or not there have been any serious and/or unresolved complaints about the agency, such as late payments to creditors or false advertising.

Other things to consider

Be comfortable with the credit counsellor

Credit counsellors are not required by law to have specialized training, though many do. Always ask about your counsellor's qualifications, including education, specialized training and years of experience.

Make sure you are comfortable with the counsellor and that you trust his or her opinion and judgement. If you are not comfortable with the person assigned to you, ask to see if there is another counsellor that can help you with your situation.

Look for easy-to-understand contracts

A contract for a debt management program should clearly state how much you will pay in fees, when the agency will process your payments, what your responsibilities are and what you can expect from the agency. You should also know what will happen if your financial circumstances change and you can no longer make payments.

Ask for a copy of the contract, and ask questions if you need them to explain any of the terms and conditions. Carefully read and fully understand the contract before you sign it.

Monitor your payments and progress

Ask the agency for regular written status reports (such as every month or two). Your creditors may stop sending you monthly statements for your debts while you are on the debt management plan. If you still receive statements, review them carefully to make sure that the agency is paying your creditors on time, and to avoid any late fees or negative entries on your credit report.

To monitor your progress, you can order a free copy of your credit report from time to time. This will give you the opportunity to review the information it contains to make sure it is accurate. Report any errors or missing information to the credit reporting agency and insist they be corrected immediately.

Other FCAC information of interest

Tip sheet

• Before You Sign Any Contract: 10 Things You Need To Know

Publication

• Understanding Your Credit Report and Credit Score