Credit Counselling: An Open and Honest Conversation with Heather Cudmore

What is credit counselling all about?

On this week’s show we talked with Heather Cudmore, a credit counsellor who worked with Mosaic Counselling and Family Services and now works for Hoyes Michalos. We had an open and honest conversation about credit counselling, debt management plans, and your options when dealing with debt. Some of the topics we covered:

  • What exactly does a credit counsellor do?
  • Who does a credit counsellor work for?
  • Is it true that they are just a collection agency for the big banks?
  • What does it cost? What are the fees?
  • Isn’t a debt settlement better and cheaper? What about other options?

Credit counselling often starts with a budget. That means helping you figure out what you can afford. Can you afford that new house, or rental place? Do you need a room-mate to make it happen? Heather mentioned how they even love to do budgeting:

” I know everybody hates the word budget but I like to throw it out as — it’s doing things you want to do.”

Even a vacation can become affordable when you budget for one.

Debt Management Plan

One of the primary debt repayment tools offered by credit counselling agencies is known as a debt management plan (or DMP). In a DMP you repay your creditors, in full, over a period of up to 5 years. The big advantage is that now Heather, in other words your credit counsellor, is now dealing with your creditors so you don’t have to. You pay your credit counsellor each month and they pay those creditors who agree to participate a pro-rata share of your monthly payments. The creditors are happy because they receive payments against the loan on a regular basis. Clients benefit because often the creditors agree to forgo any further interest charges.

The downside is that, as with any debt repayment program, a debt management plan will affect your credit rating. Any time you stop making your regular payments to your creditors, your credit rating is going to be affected.

Another feature of a debt management plan is that you repay your debts in full. There is no reduction in the original principal. So why not try a debt consultant that offers to ‘settle your debts for 30 cents on the dollar’ instead? Heather describes some pretty significant differences between what a debt settlement company does and what a not-for-profit credit counselling agency does for you.

  • Debt settlement companies do not talk to your creditors right away. They will often wait months, until there is enough money in the pot to propose a deal with your creditors. In a debt management plan, your creditors begin receiving money the first month when they sign up to participate in the program.
  • If your creditors continue to call, a debt settlement company leaves you to deal with the mess. If you are enrolled in a debt management program, your credit counsellor talks to your creditors for you.
  • Debt settlement companies charge thousands of dollars in fees, much more than the fees charged by credit counsellors.

Heather provided a lot of additional inside scoop on exactly how a Debt Management Program works. It was a fantastic insight into this option. As we discussed in the show, no one solution works for everyone but if you have debt you should consider all possible solutions. Talk to a bankruptcy trustee and talk to a credit counsellor. The best decision is an informed decision.

How Do Credit Counsellors Get Paid?

Heather also explained how credit counselling agencies get paid. Their fee is based on two components:

  • they typically charge 10% of your monthly payment. So if your monthly payment is $300, the creditors get $270 (pro-rata) each month and the credit counselling agency keeps $30.
  • the credit counselling agency also earns a fair share donation back from participating creditors. In other words, some creditors, like the banks, give money back to the credit counselling agency each month in the form of a tax deductible donation to help support the agency. This donation can run from nothing to a maximum of 22%. It varies by creditor, with not all creditors participating and the major banks being at the higher end of the scale.

Sometimes people view this as meaning that credit counselling agencies are just collection agencies for the banks. But as Heather explained it, unlike a collection agency, her goal is not to get you to pay more. In fact she starts the process by figuring out what you can afford to pay each month and seeing if, based on that amount, a debt management plan makes sense for you. If you can’t afford to repay your debts in full within your budget, then a debt management plan isn’t the right tool for you. In that case then yes, you should look at filing a proposal or personal bankruptcy under the Bankruptcy & Insolvency Act.

Are You In Need of Credit Counselling?

We’ve talked a lot over the past few months about the profile of who goes bankrupt in Canada. From our recent study we know that there is really no such thing as the ‘average’ debtor. In truth, debt problems can happen to anyone at any age. After listening to our podcast last week, we know that seniors are filing bankruptcy at an alarmingly increasing rate. But bankruptcy also affects graduates, families, single parents, self-employed and small business operators, homeowners and renters. In fact:

  • the youngest debtor in our study was 18, the oldest 88;
  • 30% of debtors were single, 40% were married, 28% were divorced or separated and 2% widowed;
  • 81% were working; 6% were unemployed , 6% retired, 4% on disability with the remainder struggling with debt while on maternity leave, social assistance or attending school;
  • while the average debtor income was $2,427 a month it ranged from $0 for those not working to $14,754 a month.
  • One in four debtors owned a home while three in four were renting.

The point of all this is to say that if you are struggling with debt you are not alone, and in fact, there is someone much like yourself going through the same circumstances. If you’re in debt, you should not be afraid to reach out to a credit counsellor or bankruptcy trustee to discuss your debt relief options.

Listen to our conversation with Heather Cudmore or read the full transcript below.

Resources Mentioned in the Show

If you have any questions about credit counselling, debt management plans or anything discussed on today’s show, leave us a comment in the comments section below.

FULL TRANSCRIPT show #4 with Heather Cudmore

credit-counselling-cudmore-transcript v2

This show was also rebroadcast as episode 49 as a best of show.

Doug Hoyes: Welcome to Debt Free in 30 where every week we take 30 minutes and talk to industry experts about debt, money and personal finance. I’m Doug Hoyes.

There are lots of ways to deal with debt, and today, we’re going to talk about one of them so let’s welcome in my guest. Who are you, what do you do, and where do you work?

Heather Cudmore: My name is Heather Cudmore. I work for a company called Carizon Family and Community Services and I’m the manager of Mosaic Credit Counselling.

Doug Hoyes: Great. Thanks for being, Heather, and welcome to the show.

Heather Cudmore: Thanks for having me.

Doug Hoyes: Great to have you. And obviously, today we’re going to talk about credit counselling. Now, before we start, let me repeat the disclaimer that I give at the start of many of our shows and that’s this. Debt Free in 30 is a show that talks about all of the different ways to deal with debt. This show is not a commercial for any one method or just because we’re talking about something, doesn’t mean I’m endorsing it or saying you should try it.

I’m a bankruptcy trustee, so not surprisingly, I think if you have debt, you should consider personal bankruptcy or consumer proposal; however, I don’t think that’s the right solution for everyone. In fact, it’s not the right solution for most people and that’s why on this show we discuss lots of different alternatives. So with that disclaimer, let’s talk about credit counselling which I believe is a good solution for some people and not a good solution for others. So Heather, give us some background. Tell us a bit about Mosaic and Carizon. A bit of the history of the agency, what exactly do you do?

Heather Cudmore: Actually, there’s a whole bunch of things that we get to do at Mosaic Credit Counselling. We can start somebody at a budget. You can come and see me and we can figure out how to manage your money. Maybe it’s your first job, maybe you’ve separated and you’re trying to figure out can I afford that house, can I afford that rental place, do I have to share my residence to manage? So you can come and see us and we enjoy doing budgeting.

We’ll look at your income, look at your expenses and we’ll talk about reasonable expenses. What’s reasonable for you and is that the lifestyle that you want? I know everybody hates the word budget but I like to throw it out as “it’s doing things you want to do”. If you don’t have a budget, you can’t do a vacation every year, but if you budget for a vacation, there’s a great way to start.

Doug Hoyes: So it’s a positive thing where we’re looking forward. It’s not a punishment. I want to do things. I need to record where my money is going to so I know what I can afford to do.

Heather Cudmore: Yep. I usually say what I do is help people be smart about where their money is going and I guess probably the overarching thing is let’s do a whole financial assessment on you. Look at your income, look at your expenses and when somebody does come and see us, we are going to talk about all those different financial solutions. Maybe it is just bad money management habits that we have to work on. Maybe it is the worst case, possibly a bankruptcy.  And you’re right, everybody should not file bankruptcy or do a proposal but that may be that best solution for that person. When you come and see us, we’re going to talk about options and then send you home and hopefully you can make an educated decision about what suits your situation the best.

What is A Debt Management Plan

Doug Hoyes: And so one of the things that you do is a debt management plan which is often referred to under the umbrella term, credit counselling. So explain to us what is a debt management plan, how does that work, what do you do, how does it work?

Heather Cudmore: Well, a debt management plan is not a consolidation loan. We do not have money that we hand out and pay all your debts. What it is, is monthly you pay us and monthly we turn around and pay the creditors. There’s a lot of pluses and minuses of this repayment plan. The plus, I get to deal with the creditors. You don’t have to. You refer all the calls to us and we’re responsible for contacting the creditors. Another plus of that arrangement is that the majority of creditors are going to stop charging interest.

Everybody knows that if you’re being charged a high interest rate with your credit cards, your minimum payment is not looking after anything more than three, four, five dollars probably on that principal. So if you can get the creditors to stop or reduce interest, that balance is going to decrease a whole lot faster. The downside of that repayment plan, it will affect your credit rating so every time you’re not paying those credit card bills or whatever debts that you’ve got as required, it affects your credit rating.

And then the last downside is there is a fee. When we’re talking budgeting and money management, we do not charge fees. We try to provide at either a low or no fee for anybody who comes and see us but just for general information, we are not charging a fee for somebody to come in and see us.

Doug Hoyes: So let’s talk about some real numbers then. So someone who has debt and what’s the typical person you’re going to deal with? They’re going to have credit cards, bank loans, what we call unsecured debt obviously, what kind of levels of debt, and I realize that some people have smaller debt, some people have larger debt but is there a kind of ballpark range that is the sweet spot for what you’re doing, it’s someone with $10,000, $20,000, $30,000 in debt? What would the number be?

Heather Cudmore: Actually, no, we probably work it out the other way that we don’t look at what the debt is, we look at the ability to pay. So what is that amount that you can pay monthly? The person who comes in and says they’ve got $300 to pay to their creditors, is that something that can be paid to your creditors? Now, we are looking at a maximum of five-year payment plans so if you come in my office with $60,000 worth of debt, I’m going to come back to you and say it has to be paid off in five years, that’s going to be over a thousand dollars a month just to look after that.  Does that fit into your budget? And if it does not fit into your budget, maybe this repayment plan, the debt management plan that we are doing is not an option.

I am probably seeing somebody with an average repayment plan of 300, $400 a month and yes, can that fit into your budget, can you pay all your creditors with that amount and still live? Counsellor is in my title so part of my job is to make sure that your life, the rest of your life is still being managed, that you are able to buy groceries, put gas in your car. Not that I’m promoting coffee, but have a little enjoyment of your life, where is that balance? So working backwards, can you do a $300 – $400 and have your debts paid off in five years.

Doug Hoyes: We’ll each take a sip of our coffee while we break here. So if the average repayment plan is somewhere in the sort of $300, $400 a month range and if the maximum period is five years so you’d be looking at someone with $18,000, $20,000 but obviously somebody with $60,000 in debt, if they’ve got a really good job and can afford more than a $1,000 a month, you can help them, too.

Now, one of the criticisms of credit counselling is well, wait a minute, really what you are is a collection agency for the banks because it’s the banks who are paying you, it’s the banks you’re working for, it’s all about the banks, banks, the banks. That’s what you’re really doing. How do you respond to that criticism, are you really just yet another collection agent for the bank?

Heather Cudmore: Actually, no, I don’t think I am because you as a client are sitting in front of me and I want to make sure that the options and the solutions that I’m throwing out fits your situation. So I am not going to try to convince you to pay more month to month than you can afford. I may suggest another option. We can talk about, again, bankruptcy or a debt management program.

Now, on the other hand, if you’ve got really, really bad spending habits and you can afford that monthly payment on your own, can I help you get the skills to manage that and learn from there. A big component of what I do is the education part because I want you to be able to walk out of my office better educated, being able to make a decision on what you want to do.

Doug Hoyes: And that’s great because obviously education is something that’s important but education doesn’t pay the bills. If someone doesn’t end up doing a debt management plan it’s kind of hard for you to get paid and obviously you’ve got to keep the lights on at the agency and so on. Walk me through how the fees work. I’m an accountant, I like to hear the numbers. How much is everyone getting paid here so when someone comes in to do a debt management plan, and let’s take your example of a typical $300 a month plan, how much is the person in debt paying, how much of that goes to you, what other sources of funding do you have?

Heather Cudmore: I’m going to charge a fee to the client of 10 percent. So that person who is paying me $300, I’m going to charge $30 and we actually build that into the fee. So if I say to you, you’re paying $300, I’m taking $30 of that and the remaining $270 is going to be prorated fairly out to the creditors based on what their debts are.

Doug Hoyes: Right, the bigger creditor will get a bigger share than the smaller creditor.

Heather Cudmore: Yes, yes, yes.

Doug Hoyes: Okay.

Heather Cudmore: And I’ll tell you for transparency and on our documents, we have to tell you that that creditor is actually supporting me. I get a fair share donation back from them. So they, because I am helping collect, give me money back, I give them a tax receipt. It is a donation back. So banks, they do get the image that they’re the bad guys but they are actually helping to keep me in business, helping to provide financial education in the community so money comes back here.

Doug Hoyes: So that fair share donation coming back would vary with each bank?

Heather Cudmore: It runs anywhere from nothing to some collection agencies up to a maximum of 22 percent with the major banks and everything in between.

Doug Hoyes: We’re going to take a quick break here on Debt Free in 30 and come back and talk to Heather Cudmore about some other aspects of not just credit counselling but some of the scams that perhaps she sees and some warning signs for everyone so stay tuned. We’ll be right back on Debt Free in 30.

Debt Settlement Scams

Welcome back to Debt Free in 30. My guest today is Heather Cudmore who is a credit counsellor. In our first segment, we talked about debt management plans, credit counselling which is what Heather and her agency does and I had her explain in detail how it all works, who is paying who, the banks are paying, you’re paying, there’s a bunch of money changing hands. The advantage of a credit counselling or a debt management program, as Heather said, is that you’ve got one monthly payment, it deals with all your debts, often at a zero or reduced interest rate. Heather or someone like her is dealing with all the creditors. You don’t have all the collection calls, it’s great.

Now, the disadvantage, one of the disadvantages is that you are paying back a hundred cents on the dollar. In order for the banks and for the credit card companies and the payday loan companies and whoever else is participating to agree to it, you have to agree to pay everything back. They’ll give you a break on the interest but you’re paying back everything in full.

Now, Heather I hear ads all the time for companies that say hey, we can settle your debt for 30 cents on the dollar, so my question to you is if I’m somebody who’s got a bunch of debt, why would I go to you and pay a 100 cents on the dollar when I can go to one of these debt consultants or debt settlement companies and only pay 30 cents on the dollar? That sounds like a better deal to me.

Heather Cudmore: Well, actually it is a better deal. The only problem with a lot of those companies is they’re really pulling your leg. That much of a debt settlement is probably not possible. These companies overall are probably not transparent. They’re not going to tell you that it affects your credit rating. They’re not going to tell you that what they have you do is put money in a savings account and once they get their fee, which is sometimes $2,000, $3,000, once they get that amount, then they will start offering those settlements to the creditors and in the meantime, those creditors are not just waiting for your settlement, they’re harassing you, they’re phoning you, they’re threatening to garnish you. And at that point, when you phone that debt settlement company and say hey, what can you do for me, they’re really not willing to work with you. You’re on your own and you have to deal with that creditor.

Doug Hoyes: So if I’m comparing the two things, a debt settlement to a debt management plan, which is what you do, one difference is the way the interaction works with the creditors then. So when I come into see you, when do you talk to the creditors?

Heather Cudmore: I talk to them right away. You sign papers with me saying that you are going to sign up for that debt management plan, that repayment plan, I contact the creditors right away. I start making payments to those creditors right away once they’ve got in contact me and confirmed yes, this is where the debt is and we’ll take payment and we’ll stop or reduce charging interest. I don’t wait two or three years down the road. Those creditors start getting money right away and again, every month when you pay me, every month that creditor gets their money. So there’s consistent money going to the creditors. Major banks do not wait to six months, nine months to get some type of a payment plan.

Doug Hoyes: So if I came into you and I’ve got a bunch of debts and you do the math and you figure okay, we can do a plan, it’s going to cost me $300 a month. So we set it up so every month I pay you $300 and how does that work? Am I doing that electronically, how do I get you the money?

Heather Cudmore: We prefer electronically, through your phone, computer banking, automatically  put money into our bank account and once a month, we do a check run and the money goes out to the creditors.

Doug Hoyes: So if at the first of the month I come in, I sign up, you have to contact the creditors obviously to find out if they say yes or no, how long does that typically take?

Heather Cudmore: It usually takes about two, three weeks. Again, depending on the creditor. Some of them are right back and will say they’ll take payment plans. Other ones maybe take a little longer depending on the size of the place, the workload.

Doug Hoyes: But typically within let’s say a month, you know the creditors have said yes or no?

Heather Cudmore: Yes.

Doug Hoyes: So the first of the month I come in, I sign all the paperwork. By the end of the month, you’ve got them to agree to it so that at the start of the next month is when I make my first payment or do I make my first payment at the start of the first month?

Heather Cudmore: Usually we have you make your payment right at the start of the month and so then if some creditors are a little bit slower, maybe we can get rid of a creditor on your behalf. We can have money go to another creditor and get rid of them but generally if all the creditors write back, your $300 minus our fee, is going to go each a little to all  your creditors.

Doug Hoyes: And are you literally sending money to the creditors on my behalf every month or do you do it every three months, every six months?

Heather Cudmore: Every month.

Doug Hoyes: Every single month.

Heather Cudmore: Every month money goes out to the creditors.

Doug Hoyes: So that’s one of the reasons the creditors like it. Obviously they’re going to get all their money back but they’re also getting it more frequently. And you said with a debt management plan, it doesn’t work like that. The money gets held —

Heather Cudmore: A debt settlement company.

Doug Hoyes: I’m sorry, a debt settlement plan, the money gets held in either in a savings account or some other account and then once there is enough money to propose the settlement, that’s how it works?

Heather Cudmore: Yeah.

Doug Hoyes: Okay.

Heather Cudmore: And debt settlements are really challenging because not all creditors will take debt settlements. A lot of major banks are not willing to take only 10 percent, not without some type of a formal arrangement and, you know, formal arrangement being a proposal under the bankruptcy act or bankruptcy where they’re getting a lesser payment. No one upfront can guarantee that a creditor will take a settlement. If you came into my office and said I want to settle with this creditor, I can’t guarantee if they’re going to accept that. I can contact them on your behalf and try to work out something but to say upfront I can get you a 70 to 90 percent settlement, there’s no guarantees there.

Doug Hoyes: Well, and as I said at the start of the show,  I think as a person in debt, what you’ve got to do is explore all your options. So credit counselling works when you can afford to make a payment each month that will satisfy all of your debts over a maximum of a five-year period. If it’s going to take a thousand dollars a month to do that and you can only afford $300, credit counselling isn’t going to work for you and that’s just the way it is, right?

Heather Cudmore: I don’t even like to argue that if somebody wants to do a settlement with one of their creditors, try to contact them themselves. If your situation is really bad, you’ve lost your job, you may have a settlement from there, do you go on your own behalf to the creditors and try to get a settlement. If you’ve got a really bad payment history, there’s probably a good opportunity that that creditor may take that payment arrangement. Number one rule, get it in writing, make sure you have this debt settlement in writing but why would you go and pay a company two or $300 — thousand, not hundreds, thousands of dollars for this type of a settlement arrangement. Is that something that you can do on your own?

Doug Hoyes: Yeah, and I think a debt settlement works if you’ve got a lump sum of money sitting right there. A lot more likely that they’re going to accept it rather than a payment over an extended period of time.

Heather Cudmore: And not too many people in financial difficulties have a lump sum of money sitting around.

Doug Hoyes: Yeah, otherwise they wouldn’t be in financial difficulty.

Heather Cudmore: Yes, yes.

Doug Hoyes: Heather, very  much appreciate you coming on the show. We’re going to take a quick break then I will wrap it up. You’re listening to Debt Free in 30.

30 Second Recap

This is Debt Free in 30. I’m Doug Hoyes and it’s time for the 30 second recap of what we discussed today. My guest was Heather Cudmore, and we talked about budgeting and the different options for dealing with debt, including a debt management plan which is a monthly plan administered by a not-for-profit credit counselling. She talked about the advantages, mainly the collection calls stop and the disadvantages.

Well, there’s an impact on your credit report and there’s costs and fees to pay. The key she said is to make sure you can make sure you can afford the plan. I asked Heather if she’s really just a collection agency for the banks and she explained what she believes her role is and what the fees are charged for. She did explain that a debt management plan requires you to pay back the debt in full. So we talked about other options as well like debt settlement where you pay less than the full amount owing. Heather talked about the pros and cons of those options. There’s your 30 second recap of what we discussed today.

So what’s my take on all this? Well, I don’t believe that there is one solution that works for everybody. For some people, credit counselling is a perfectly good solution. For other people, it doesn’t make any sense. I would say the same thing about every other solution. I don’t think bankruptcy or a consumer proposal is the right solution for everyone. In fact, I think it’s only the right solution for a very narrow segment of the population. Same with debt settlement, same with debt consolidation, same with trying to budget and pay it off on your own.

You’ve got to find the solution that works for you in your unique situation. So don’t assume oh well, I’ve got to go talk to a bankruptcy trustee because I’ve got debt. Yeah, I think you should come and talk to us but we may not be the right solution for you. We will help direct you to where you should go. Same thing with a credit counsellor. Don’t just assume oh, they’re a not for profit credit counsellor therefore that’s the solution for me. By all means, go talk to them. Make sure you understand how it works. Make sure you understand all of the options so you can make an informed decision. That’s really the whole key to it.

That’s our show for today. I want to thank Heather Cudmore for being on the show with me today. I think there’s a lot of confusion around credit counselling and some of the other options so I’m glad Heather was here and was able to help clarify it for us today. If you’re listening to this on the radio, thanks for listening. Please make a note of the station and the time this show is on so you can tune in again next week. If you’re listening to this in podcast format, you can subscribe on iTunes or whatever other podcast service you use so you can get the show every week.

Today’s podcast includes some bonus content that we didn’t have time for on the radio show. Heather and I chatted for a bit longer so if you want to hear her thoughts and my thoughts over and above what you’ve already heard, you can go to our website, This is show number four and you can hear the rest of the show. You can see the show notes and we encourage you to leave your comments on the website.

If you’ve got questions or something you’d like us to discuss on a future show, you can leave it there as well. All of our shows are on the website. Just go to, that’s, click on the blog, go to the podcast link or just search for podcast. You can read our show notes, get links to everything we discussed and even listen to the show again on your computer. That’s, for full show notes.

Until next week, I’m Doug Hoyes. This was Debt Free in 30.

Bonus Content

Doug Hoyes: Welcome back to Debt Free in 30. This is the bonus podcast segment. This will not appear on the radio. Our radio show is limited to half an hour, which by the time you take out the commercials is about 22 minutes, and I find that often when I’m talking to my guests, we’ve got a list of things we’d like to talk about and then all of a sudden the time is gone and we don’t get to everything we’d like to talk about so we have some bonus content for you that will only appear on the podcast that you’re listening to right now. Heather Cudmore has agreed to stick around and keep chatting, thank you very much for that,  Heather.

I would like to kind of get some insider tips, some knowledge that’s in your brain specifically about how to be a smarter consumer. The purpose of this podcast is to give people practical advice. Not just to talk about the theory, not just to give commercials for you and me. So give me your thoughts and maybe we should direct it specifically to borrowing. Is that a good place to start?

Heather Cudmore: Actually, yeah, borrowing is a great spot to start. Being a smart consumer, borrow at a good interest rate. If you have to borrow money, you want to borrow it at the lowest cost possible. So interest rates run, mortgages 2-3-4-5 percent, if you are talking to a bank and they’re talking about letting you borrow money at 9%, 10% kind of question that. The highest interest rate for credit cards right now is running about 28-29%. So if you go into a secondary financial institution and they’re going to charge you 29-33%, my question is to you, being a smart consumer, is that the best place to borrow money? Again, lines of credit, 9-11% even lower than that percent per year.

What’s allowed in Canada, the highest rate that’s legal in Canada is 60%.

Doug Hoyes: Sixty percent. Wow.

Heather Cudmore: Sixty. Anybody who charges you over 60% can be charged under the criminal code with loan sharking. Usury is the other term.

Doug Hoyes: Usury.  Yeah.

Heather Cudmore: I still like loan sharking.

Doug Hoyes: Yeah, that sounds cool.

Heather Cudmore: Shark.

Doug Hoyes: I agree. That sounds way better.

Heather Cudmore: Yes. So again, if somebody hands you a contract and it’s up 30% or 58-59%, are you being a smart consumer by doing that?

Great example that I have is I had a client who was in the bank trying to do some refinancing and was referred to another place where they were going to charge the 33%. And I work backwards when I’m doing loans. I try to figure out how much it is that I’m going to be paying. We do it with a mortgage. We sit down and say okay, how much can I afford to pay on a mortgage when I look at my utility cost, my taxes, and my mortgage, what is that going to work out as? But these days, if I go and buy a vehicle, the vehicle company turns around and says this is what the payment is going to be. And we are not really looking at does that fit into my budget. Can I afford to pay six, $700 for the next six, seven years on that car loan and actually if the answer is no, can I come back and do I choose to buy another vehicle, do I try to get that same loan at a lower interest.

Doug Hoyes: So let’s some make some practical tips here then. I agree with you; it’s obvious I want the lowest interest rate but how do I actually get that? So I guess the first thing you’re saying is actually have to read what they’re putting in front of you.

Heather Cudmore: Yes, yes.

Doug Hoyes: That’s kind of obvious but it isn’t. So you give the example of going to get a car loan. Well, I’m really psyched about getting the car because the  car at the back says turbo and we all know turbo is good so I don’t really care what I’m paying. I want the car. I have to step back and say no, no, wait a minute, wait a minute. Let’s look at the numbers. I’ve also got to look at the monthly payment is important because if I can’t afford it, I’m going to be in trouble, but looking at the length of the loan is important as well.

So maybe I can’t afford $500 a month, but I can afford $300 so the car place says no problem, we can do it for $300 a month except instead of being a five-year loan, now it’s going to be an eight-year loan. Okay. That obviously greatly increased my cost. So I think looking and reading the loan document. Don’t be pressured into signing anything. Actually understanding the interest rate.

How do you get lower interest rates though? So it’s easy to say well, I want a low interest rate; I assume that means shopping around. You’ve got to go from bank to bank or what?

Heather Cudmore: Do your homework before you go in. What is a good interest rate?

Doug Hoyes: So it’s before you go in. I think that’s a key point. Because once you’re sitting across the desk from —

Heather Cudmore: That turbo is really flashy.

Doug Hoyes: Yeah, the turbo is really flashy. So do your research before you go in so that you know what you’re looking for.

Heather Cudmore: Yes.

Doug Hoyes: And is that the best way then to make sure you’re getting the lowest possible interest rate is knowing what’s out there?

Heather Cudmore: I think so, yes. Knowing what money is being spent.

Doug Hoyes: And for you, the key I guess starts with what is the payment that I’m making each month?

Heather Cudmore: Yes, yes.

Doug Hoyes: And so you have to have a budget or some way to determine what you’re actually able to pay.

Heather Cudmore: Where’s that plan?

Doug Hoyes: Yeah, a plan is a good thing.

Heather Cudmore: Yes, because again, do I want to be signed into an eight-year car loan? Do I want to buy a house that two years, three years down the road when my income may drop, am I still going to be able to afford that?

Doug Hoyes: Well, and I always like to stress test those things. So great, I’m going to buy this car and it’s going to cost me $400 a month on the loan. Yep, no problem. I know what my income is, I can afford the $400. Well, what happens if my hours get cut back at work? What happens if instead of working five days a week, I can only work four? What if the overtime goes away? What if I lose my job? Okay. I could probably find a job somewhere else but if it’s going to take me six or eight weeks to find another job and it takes six weeks for EI to kick in, do I have enough of an emergency fund sitting over there to make the payments. And with a car loan, it’s not just the car payment. There’s also this thing called insurance. You’ve probably heard of that.

Heather Cudmore: Oh, there’s also this thing called maintenance.

Doug Hoyes: Yeah, and gas. That costs a few bucks as well. So it was great when I was taking the bus because I didn’t have to worry about any of that kind of stuff. Now that I’m buying this car, I’ve got all these other things so my $400 a month car loan maybe is going to cost me a $1,000 a month when you add in the insurance, the maintenance, the gas and so on and so forth. Can I afford that?

Heather Cudmore: Yes. And let’s even go back to that loan. When you’re signing those papers and you’re looking at them, find out what other things are being charged to you  because in a lot of places, they’re going to be selling insurance on that loan, loan insurance. So if you are not able to pay or disability insurance is another one, if you are not able to pay, if you lose your job, you become disabled, the insurance company is going to pay for that. Is it worthwhile having that?

Doug Hoyes: So in general, what’s your opinion on that? Is loan insurance a good idea or not so good an idea?

Heather Cudmore: I say every case is completely different and to sit down and analyze your case because yes, if you have a partner who is the bread winner in the family and I get disabled and I’m not able to work, is there enough money going to be in that household to actually pay that off? Do I need that insurance? It’s not like life insurance, this is insurance for a loan and actually being a smart consumer, there are a lot of credit card companies out there that are offering insurance on the debts and it is a percentage of what the balance is. Again, if I lose my job, if I become disabled, is there other options instead of me paying a couple thousand dollars over how many years just to have this insurance on the account?

Doug Hoyes: I think you definitely have to crunch the numbers because if the insurance is going to cost you $10, $15, $20 a month on whatever the loan is, would you be better off taking that $10 or $20 putting it into a savings account each month and after six months or a year or a year and a half or two years, you’ve got enough money sitting in the savings account to cover a couple of months of payments anyway. And if by the end of the loan that you haven’t needed that money, great, pay the loan off quicker, you’re out of the soup that much quicker.

Heather Cudmore: Really great resource to help you crunch the numbers, most of the major banks out there have loan calculators. Calculators on their websites that you can go in and say I want to borrow this amount of money at this interest rate. It’s going to take me five, six years, seven years to pay it off. What’s the actual cost going to be? Again, before you start signing things, do a whole bunch of homework. If I borrow this car at this interest rate over this long, let’s compare apples to apples. If I’m buying a new car low interest, how long eight years. Over a used car, half the cost, higher interest and you can sit down and bottom line which one works out best.

Doug Hoyes: Yeah, and you’ve got to factor in, obviously, like you said, maintenance cost so your new car that comes with a warranty, well, I don’t have to pay for anything probably for the first two, three, four years.

Heather Cudmore: Actually, I will argue with you there. Maintenance costs, you will probably be replacing tires the first couple of years. You will probably be doing brakes the first couple of years. The maintenance, your oil changes, regular wear and tear you are responsible for. Leasing cars, it’s really the same thing. You are responsible for the wear and tear on the vehicle so you probably will be spending probably in the first three years, a couple thousand for that regular wear and tear.

Doug Hoyes: And I guess that’s where doing your research comes into play. So there are some deals when you buy a new car, now, these are obviously pretty expensive cars, where everything is covered. So we’re going to do your oil changes and everything but obviously you’re paying a premium for that. You’re right, your typical car that you’re leasing or buying, they’re not doing the oil changes for you. You’ve gotta do that and with the newer cars, the oil changes might not be as frequent as they used to be but of course it’s the fancy oil, and we’re going to rotate your tires and because your tires have these sensors in them so we can tell when the pressure is down, we have to reset the sensors every time we rotate your tires.

Heather Cudmore: And is there a cost for setting the sensors?

Doug Hoyes: Oh, yeah, everything costs money. So your typical oil change that you get twice a year costs $200 because it’s not just the oil change, of course the manufacturer recommends we do this, this and this. Now, I’m not saying that’s good or bad. I’m not saying that’s right or wrong.  I’m saying you’ve got to factor that cost into the analysis that you’re doing so that you know that it makes sense for you. Buying a new car that has a relatively full warranty reduces your risk because if the transmission drops out, it’s going to be covered. Buying a used car, well, the transmission drops out, you’ve got to pay for a new transmission, but you are right, that used car is going to be a lot less than the new car, you would think, so what makes the most sense? You’ve got to look at the numbers for yourself. And I guess you want to talk to somebody who is knowledgeable about the car that you want to buy, talk to your brother because he knows about cars, talk to your friends, talk to a guy that you trust at the dealership.

Heather Cudmore: Make a friend with a mechanic.

Doug Hoyes: Absolutely. Those are the best friends to have because they can tell you know, you know what, I never see that car come in or that one, yeah, it’s in here all the time. Okay. So if I buy that car, I’ve probably got a good chance that my repairs and maintenance are going to be less and then you can make that informed decision. If you don’t crunch the numbers, then you’re going to get into trouble.

Heather Cudmore: Yes.

Doug Hoyes: Excellent. I appreciate that, Heather. That’s some bonus content for you there. I guess the message is you have to do your research. Nobody else is going to do it for you. Heather has mentioned some good resources, the banks, websites and what not that have loan calculators on them. I will put some links in the show notes to this episode so you can go to That’s h-o-y-e-s-dot-com. Just do a search for the word podcast or you can search for Heather’s name, Heather Cudmore, CUDMORE. Search for Mosaic, search for credit counselling. You’ll be able to find it. We’ll put links to Heather’s website. All the information that we’ve talked about. Heather, thanks for being here.

Heather Cudmore: Thank you for having me.

Doug Hoyes: Thank you.

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2 comments on “Credit Counselling: An Open and Honest Conversation with Heather Cudmore

  1. CanadianDaniel on

    Great podcast, Doug. Based on my personal experience, the hardest step is admitting you have a problem — particularly when it comes to emotional triggers that cause overspending (in my case, on the latest computer technology and gadgets). I know Heather mentioned free consultations, but I’d be interested in finding out where Canadians can go for group sessions or other help that encourage them to face their spending problems head-on before overwhelming debt makes it necessary to seek out a credit counsellor or bankruptcy trustee.

    • J. Douglas Hoyes, CA, Trustee on

      Thanks for the comment. Most not for profit credit counsellors offer group sessions as well; I know that Heather Cudmore’s agency has sessions twice a month. Unfortunately most advisors are selling something, so it’s very difficult to find unbiased, no charge advice.

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