Credit Counselling Services
Always make sure you are talking to an accredited debt management expert, whether a credit counsellor or Licensed Insolvency Trustee. We provide credit counselling services to our clients in two ways:
- We conduct a free initial debt assessment with everyone we meet. This analysis includes a review of your debts and your budget. We explain all debt relief options available to you. By law, Licensed Insolvency Trustees must present all your options. We are the only licensed professionals required to do so.
- If you determine that a consumer proposal, or even bankruptcy, is a better option to help you get out of debt sooner, then you will attend two credit counselling sessions to provide you with the tools and knowledge you need to rebuild your finances and remain debt free.
At Hoyes Michalos you always meet with a licensed expert. All our advisors are Qualified Credit Counsellors and you always talk with a Licensed Insolvency Trustee.
Should I talk to a Non-Profit Credit Counsellor?
Seeking help from a non-profit credit counselling agency is a good solution if you have enough money to pay your debts in full 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. We describe more below about how a debt management works however it is important to understand that a debt management plan is not always the fastest way to eliminate your debt.
As Licensed Insolvency Trustees we also offer a debt relief program called a consumer proposal. In a consumer proposal you repay only a portion of your debts. This is not an option available through a credit counselling agency.
To help you decide if a debt management plan or consumer proposal is a better alternative you, skip to the section 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.
Two of the most popular debt management programs used as an alternative to bankruptcy are a consumer proposal and a debt management plan or DMP. While each have advantages and disadvantages, they are two drastically different debt management services. Understanding the key differences between a debt management plan and a consumer proposal can help you choose the right option for you.
|Debt Management Programs:||Consumer Proposal||Debt Management Plan|
|Who Files||A Consumer Proposal can only be filed through a federally licensed Trustee.||An accredited credit counselling agency.|
|Debt Reduction||Generally up to 85% of your debts.||None. You are required to repay your debts in full.|
|Debts Eliminated||Almost all unsecured debts including credit cards, payday loans, bank loans and tax debts.||Generally only credit card debt and bank loans. CRA will not reduce your debt through a credit counselling agency.|
|Binding on all creditors||Yes, once a proposal has been accepted all creditors are bound by the terms of the proposal.||No, you can pick and choose which debts to include but your creditors can also opt out of the debt management plan.|
|Creditor Protection||Yes||Not automatic; only if creditors agree.|
|Stop Wage Garnishments||Yes||Not automatic, only if creditors agree.|
|Deal With CRA||Yes||No|
|Credit Rating||An R7 rating remains on your report for 3 years after completion||An R7 rating remains on your report for 2 to 3 years after completion|
Getting a Debt Assessment
In most situations, your payment under a consumer proposal will be significantly less than they would be under a debt management plan.
In order to help determine which option is best for you, we recommend you talk to one of our experts about a free, no-obligation debt assessment. During this process we will ask you:
- What type of creditors you owe money to
- How much you owe each creditor
- What your monthly budget looks like.
With this information we can help you determine whether a consumer proposal or a debt management plan is your best choice given your unique financial situation.