Credit Counselling Services
Credit counselling is a great solution if you have enough money to pay your debts, but you need a break on the interest being charged.
A credit counsellor summarizes your debts and then prepares a multi-year debt repayment plan on your behalf, called a debt management plan. At the same time, they provide instruction and guidance on your personal finances, including help with budgeting and on-going debt counselling.
At Hoyes, Michalos & Associates we know that bankruptcy, or even a consumer proposal, is not the solution for everyone. If you have a small amount of debts that you can afford to repay, we believe credit counselling can work. However, we also know that finding a good credit counselling agency can be a challenge. Thankfully, we work with several not-for-profit agencies in our communities. If credit counselling, or a debt management plan are the right solution for you, we will tell you and we can refer you to a reputable credit counselling agency in your area.
To help you decide if a debt management plan or consumer proposal is a better alternative you, we describe how a debt management plan works below. For more information read our article: Consumer Proposal vs Debt Management Plan
What is a Debt Management Plan?
A debt management plan is a service provided by a member of a credit counselling society, such as the Ontario Association of Credit Counsellors. These are non-profit agencies created to help individuals experiencing financial distress.
Debt management plans are designed for people who can afford to repay all of their debt over a period of time, but are unable to qualify for a debt consolidation loan, and require a period of time to make the repayments.
In a debt management plan, the non-profit credit counselling agency "pools" your unsecured debts together so that you are only required to make a single monthly payment (to the not-for-profit agency). The agency then divides your payment amongst each of your creditors, with the larger creditors getting a bigger share of payment.
Advantages Debt Management Plan
- Relief from collection agencies
- A single monthly payment;
- Reduced and sometimes zero interest charges; and
- It's a voluntary procedure - you decide to start the process.
Disadvantages of a Debt Management Plan
A debt management plan is not a legal procedure - it is a voluntary agreement between you and your creditors. As such, it may not include all of your creditors, nor is it binding on any creditors. A debt management plan does not have the ability to automatically stop a garnishment order - the creditor must agree to lift the garnishment.
If you feel that you can only afford to repay a portion of your debts, a consumer proposal is likely a better option for you. In a debt management plan you repay 100% of your debts, but in a consumer proposal you may only be required to repay as little as a third of your debts, so a consumer proposal may be much more affordable. Since the impact of a consumer proposal or a debt management plan on your credit report is the same, a consumer proposal is a better option for most people.Contact Our Team Today