Frequently Asked Questions about Credit Counselling
It’s common to have questions about credit counselling and debt management plans. These are services that most people don’t know anything about until they need them. With that in mind, we’ve put together answers to the most common questions we receive about our services.
If you can’t find the information you are looking for below, please call us at 1-888-402-9720 and a trained credit counsellor will be happy to answer any questions you have.
Debt settlement is another type of debt relief service that’s distinct from credit counselling and debt management plans. First, let’s focus on the services that Consolidated Credit provides. A debt management plan is a customized repayment plan that consolidates credit cards and other unsecured debts. Through this type of plan, you repay 100% of the principal debt—that’s the actual debt you owe to your creditors. The solution works by minimizing interest charges. That way, you can focus on repaying the principal and get out of debt faster. You complete the program in 60 payments or less. The program will be noted on your credit report for two years from the date you complete the program. By contrast, debt settlement will not repay the full principal debt. Instead, you only pay a percentage of what you owe. The creditor then discharges the remaining balance. There are several ways to do this, the most common of which is working with a Licensed Insolvency Trustee to develop a consumer proposal. This is an approved debt settlement plan that the trustee helps arrange between you and your creditors. Rather than minimizing interest charges, they are frozen. You pay an agreed percentage of your debt back with monthly payments made through the trustee. Once you complete all the scheduled payments, the remaining balances on your accounts are discharged. A consumer proposal will be noted on your credit for three years from the date your complete the proposal. There are also private companies that may offer to settle your debt for a fraction of what you owe. This type of debt settlement is not protected under federal law. There is no agreement made with your creditors. Thus, there is no guarantee that your creditors will accept settlement offers through a private company. What’s more, private debt settlement will result in longer credit penalties. Any debt settled will remain on your credit for six years. Additionally, since your creditors do not agree upfront to take settlements, you may face legal action, such as wage garnishment if you do not keep up with the payments on your debts.
No. With a debt management plan, you still owe your original creditors. A credit counselling company simply arranges a repayment plan and ensures that payments get disbursed to your creditors every month as agreed. You will still receive monthly statements from your creditors reflecting your balances as they get paid off. A debt management plan does share some similarities with a debt consolidation loan. Both solutions combine your debts into one monthly payment. Both solutions also work by minimizing interest. However, they are not the same. With a debt consolidation loan, you take out a personal loan and use the funds to pay off your credit card balances and other debts. You need a good credit score and a low debt-to-income ratio to qualify. A debt management plan does not have these limitations. You can qualify even if you have a poor credit score or a high amount of debt relative to your income.
A debt management plan will be noted on your credit report for two years from the date you complete the program. The status of each credit card you include in the program will be R7, which denotes a debt repaid under an adjusted schedule. These notations will negatively affect your credit score. However, they will be removed automatically after two years. By comparison, a consumer proposal will be noted in your credit report for three years from the date you complete the program. A first bankruptcy and private debt settlement are both noted for six years. So, while you can expect some damage to your credit with this solution, it is less severe than what you would experience with other debt relief solutions.
A debt management plan is primarily intended to solve challenges with credit card debt. Credit cards tend to have high interest rates compared to other types of debt that can make it difficult to pay down. A debt management plan minimizes those rates. You can include general-purpose credit cards, store credit cards, charge cards, and reward credit cards. However, you can also include many other types of unsecured debt, including: • Unsecured personal loans • Personal lines of credit (LOCs) • In-store credit lines • Debt collection accounts • Short-term installment loans, such as payday loans • Old utility or cell phone bills, for services that are no longer in use. You cannot include secured debts, such as a mortgage or car loan. You also cannot include student loans or tax debts owed to the Canada Revenue Agency (CRA).
The credit counselling team works with your creditors to reduce or eliminate the annual interest rates applied to your balances. In many cases, the creditor will agree to eliminate interest entirely, meaning you can pay off the balance you owe interest-free. That’s the best possible repayment arrangement. For other creditors, rate reductions will vary. However, most will reduce the annual interest rate to less than ten percent.
There are no upfront fees to receive free credit counselling. You can receive a free debt and budget evaluation from a trained credit counsellor at no charge and with no obligation. If you decide to enroll in a debt management plan, there is a one-time setup fee to arrange the plan. Then there is a monthly administration fee. These fees are all included in your debt management plan payments, so you will not pay anything outside of the plan payments that you and your counsellor arrange. Fees are based on the total debt you enroll in the plan and your budget. They may also be regulated by the province or territory where you reside. You can ask your trained credit counsellor to explain the fees in your specific situation during your free evaluation.
Any credit cards that you include in your plan will be frozen when you enroll. You will not be able to use those accounts moving forward. As the accounts get paid off through your debt management plan, they will be closed.
There is no requirement that you must include all the credit cards you have when you enroll, but it is recommended. Your credit counsellor will help you work out a budget that should allow you to live without relying on credit cards to cover daily expenses. However, if you wish to leave a credit card out of the program for emergencies, you may do so. If you decide to include that card in your plan later, it can be added.
Spouses are only required to enroll in a debt management plan together if the debts they wish to enroll are held jointly. If you are the sole account holder on the debts you wish to enroll, then you can enroll on your own. Authorized users are not required to enroll in a debt management plan with you. However, you should make them aware that the account will no longer be available for them to use.
If you find that you cannot afford to keep up with the payments on your debt management plan, call us and we will see if we can help you work something out. If you decide you need to drop out of the plan, you will not face any penalties. Unlike a consumer proposal, which is legally binding, a debt management plan is entirely voluntary. So, you can leave the program at any time without facing negative consequences. All payments made up to that point will be credited to your accounts, so you will not lose the progress you made. However, your creditors will likely restore your original interest rates, as well any penalties that were applied to your account prior to your enrollment. If your situation improves and you would like to re-enroll, there is no formal reinstatement process needed. Simply call us back and a trained credit counsellor will work with you to set up a new budget and debt management plan based on your new situation.
Yes. If you have extra funds that you would like to apply to your debt management plan, simply call us. Our client services team will be happy to help you apply the extra payment in the most efficient way possible. We will work with you to assess where your balances stand and how to apply the payment to help you get out of debt as soon as possible.
Hear from our clients…
“If it hadn’t been for Consolidated Credit, I would have lost everything. One year later, I’m happy to report I’ve paid off two credit cards. Thank you, Consolidated Credit, for believing in me and helping me get back on my feet.”
Patti
“On disability, I had no extra money to pay my credit card debts, so I just kept getting deeper into debt. This has been a lifesaver. I can actually save money now. I can’t where I’d be without the help of Consolidated Credit.”
Pejay
“When I started with Consolidated Credit, the collection call and letters stopped. That was a big stress relief. The payment schedule is manageable and I’m actually paying down my debt and not just dealing with the interest.”
Tanya
