Debt Counselling : The First Step Up Of A Financial Distress

Debt Counselling: The First Step Out Of A Financial Distress

Are you flat broke and swimming in a sea of debt?  Is it difficult for you to pay off your bills on time? If one of these situations apply to you, you are probably stressed out by your financial instability. But do not panic! Debt counselling can help you regain your monetary security. The financial experts evaluate your situation and provide you with the tools you need to reimburse your debt. They can even help you create a long-term plan to stay out of debt permanently named “debt management plan”.

How Does Debt Counselling Work?

Using debt counselling means working with a financial professional. The expert evaluates your income and expenses in-depth and then determine the best approach for your current situation. The advisor also creates a long-term plan to maintain you out of debt. This plan ultimately helps you manage all your bills and living expenses.
The counsellor negotiates on your behalf with your creditors to reduce the interest rate and monthly payments by extending the reimbursement period.
At the end of the process, you would be able to avoid debt in the future and know how to negotiate with creditors.

Advantages of Financial Debt Counselling

Debt counselling is a reassuring process for many. You are not alone anymore to manage your financial issues, and you will finally see the light at the end of the tunnel. Thanks to the financial advisor, you will have a clear and realistic view of your finances. Throughout this process, the expert will suggest concrete actions to take to stay out of debt.
The debt counsellor will propose a unique plan of repayment for all your debts. Which means that if you have several credits to repay (car, house, travel, etc.), they will be assembled into a single sum that you will have to repay monthly.
This way, all your debt repayments could be consolidated into a monthly repayment plan with lower interest rates.
Consequently, you will be able to think more clearly and have more tools to create a proper budget for your situation. Debt counselling is the best solution when you are stuck in a vicious circle of loans.

Debt Management Plan

The long-term plan created by the debt counsellor is called debt management plan. It is important to differentiate this kind of solution from other debt settlement options such as consumer proposal and bankruptcy declaration.
Consumer proposals and bankruptcy declarations are both legal processes where you have to work with a licensed insolvency trustee. The last option is a process regulated by the federal government. If your debt is worth between $1,000 and $250,000 you can apply to a consumer proposal whereas insolvency trustees only accept $5,000 and $250,000 worth of debt for a bankruptcy declaration.
Debt relief options do not always cover all secured and unsecured debts. Debt management plans cover unsecured debts such as credit cards, unsecured loans and unsecured lines of credit. On the other hand, consumer proposals and declarations of bankruptcy include secured and unsecured debts but are more limited. This solution does not take into account some student loans, child support payments and debt arising from fraud.
Debt management plans and consumer proposals are similar when it comes to the payment period. Their frame time maximum is five years. However, filing for bankruptcy is another story. The period of reimbursement is seriously shorter. For a first bankruptcy, the period is 9 to 21 months, and for a second one, it is 24 to 36 months.    
Sadly, these solutions impact badly your credit score. There is no other way around. However, a debt management plan provides you shorter-term consequences than the other two options. Indeed, the negative impact stays only for two years on your credit score while consumer proposal counts three years. Bankruptcy declaration has the longest effect. It can stain your credit portfolio for six or seven years. For a second bankruptcy, count 14 years.
It is interesting to know that in only debt management plan cases creditors are allowed to contact you, although, they usually will not unless you miss some payments. In fact, if you choose consumer proposal or bankruptcy declaration, creditors cannot legally contact you.
Another essential element to consider is the ability to keep your assets. They correspond to properties such as your car or your house. In some settlements, you are unable to keep your assets. For instance, if you declare bankruptcy, you are unable to keep your properties. However, some objects are exempt. Fortunately, in a debt management plan or a consumer proposal you can keep your assets, but selling your valuables can help you pay your debt.
As mentioned earlier, fees for debt counselling vary. This is due to the unregulated fees of debt management plans. This means the company is the one which set the price. The other two options’ fees are regulated by the Bankruptcy and insolvency act and are then fixed.
You need to choose the solution according to the kind of debt you have contracted and the direct impacts. Declaring bankruptcy can only be a last resort because of the heaviness of the consequences. It will take a lot of time for your credit score to recover from bankruptcy. A bad credit score can limit your financial activities such as buying a house or a car. Debt management plan is a preferred solution because it is fast and efficient.

Factors to consider

You may want to be careful when you are searching for a debt counsellor. Some can be misleading. There are a few elements which can tell if you are in front of a legit and fair company.
The agency’s reputation
You need to know if the company is in good standing. Verify if the agency received serious or unresolved complaints about false advertising. You can find all the complaints through the Better Business Bureau.
Plus, be cautious of false advertisement. Often, if it sounds too good to be true. Some agencies pretend that they can solve your issues quickly for a small percentage of your debt. Be careful of agencies which offer services as a part of a government program.
It is good to know that you may pay a fee even if the creditors refuse to negotiate or make a deal. It is also impossible to make changes or erase information from your credit history.
Moreover, debt counsellors should never coerce you into using their services. Be skeptical of counsellors trying this.
The agency’s services and costs
Throughout your research, you will notice that the services and fees can vary. However, if you ask the good questions, you may find an affordable agency.
Sometimes, the first consultation is free. Do not forget to ask if it is the case. Additionally, companies can offer a wide variety of services. It is vital to know and understand the types of services offered.
Finally, some elements are major advantages. Some companies provide a written proposal describing how they will help you. Others offer pieces of advice for your daily financial management. Find a company which does as such. This is a major plus and a good guarantee.  
The counsellor’s qualifications
Most of you may not know, but debt counsellors are not legally required to have any specific training, yet many have some form of studies. You should ask the counsellor about his or her qualifications such as education, specialized training and years of experience in order to protect yourself from fraud.
The common training includes Accredited Financial Counsellor Canada designation, offered by the Ontario Association of Credit Counselling Services and the Insolvency Counsellor’s Qualification Course, offered by the Canadian Association of Insolvency and Restructuring Professionals.
The training provides these professionals with the abilities to support clients in the areas of personal finance, consumer credit and money management.
Financial instability can cause anxiety and stress. If you are in this situation and struggle monetary, you can feel desperate and lonely. Do not wait to contact a debt counsellor! The expert knows everything about debt, loans, credit and creditors. His or her knowledge can be the missing piece to your financial health.
It can seem like a dreadful challenge when it comes to improving your credit score afterward. You do not have to be scared of looking at your portfolio! There are a few tips to improve it. Once you know and use them in your daily life, you will be on the right track and far away from financial insecurity.


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