5 Aspects Of Credit Counselling Every Canadian Should Know
With Canadians’ household debt sitting at an all-time high, credit counselling has become a much-needed service. Understanding its benefits can provide a means by which individuals can regain financial control and start tunnelling towards the light.
Canada’s modern economic landscape has definitely had its ups and downs. For most Canadians, debt is simply a part of life. While having debt doesn’t automatically equate to financial failure, the level of debt carried by the average Canadian has been steadily increasing over the years.
Borrowing money is a necessary evil that accompanies accomplishing many of life’s benchmarks: getting an education, purchasing a home, or buying a new car.
According to the Bank of Canada, the average household debt held by Canadians has been steadily on the rise for the past 30 years. At the end of 2017, Canadian households were in debt for approximately $2 trillion, and mortgages made up approximately three-quarters of that debt.
Debt of any kind is difficult to carry, but those who actually feel like they are buried it it are likely in need of debt counselling. There are 5 key aspects of debt counselling that every Canadian show know and take advantage of.
1. The Role of a Credit Counsellor
A credit counsellor has the ultimate goal of helping their clients reach positive financial goals. A credit counsellor will conduct a one-on-one budgetary consultation that includes understanding what their client’s debt responsibilities are and to whom, how they got there, and what their financial goals for the future are.
They provide their clients with un-biased information so they have all your options laid out clearly in front of them. They take away that ‘fear of the unknown’ and replace it with the empowerment of being informed.
2. What Credit Counsellors Designate as Their Client’s Most Common Money Issue
Most often, credit counsellors find that the majority of their clients are in debt due to credit card or unsecured debt. Whether through a personal loan or a finance company loan, these are the ones that most often result in collection calls.
3. Why Many People Consider Credit Counselling
Generally speaking, by the time most people realize they are unable to make the minimal debt payments or that there is an imbalance between their debt and stream of income, credit counselling becomes an appealing option. Those losing sleep at night over where the next payment is coming from and what they will need to go without in order to make it tend to seek out debt assistance.
4. What to Expect From a Session with a Cedit Counsellor
What frightens most people is the unknown. Going into your first meeting with a credit counsellor can be a stressful event for those not knowing what to expect. The session will start with the credit counsellor clearly explaining who they are, what they do, and the confidentiality of the entire process.
The next portion of the session will involve understanding the client’s specific situation. Questions asked will focus on their employment, household income, debt, and financial goals. Once the credit counsellor has a firm grasp of the client’s financial health, a clear plan of action will be discussed.
5. Understanding How Much Debt is Too Much Debt
Many people end up deeply in debt because they simply don’t understand how much debt is too much debt. A debt counsellor can shed light on this topic so they can apply it to their present and future financial situation.
For Canadians, mortgages make up the lion’s share of their debt, so a good rule to follow with is that mortgage payments don’t exceed more than 31 percent of the borrower’s gross income. A debt counsellor can help you calculate that threshold.
When times are tough, many people rely on their credit cards as an additional stream of income. A credit counsellor will help show their clients exactly how much an item is costing when it is put on a credit card with high-interest rates. The general rule of thumb regarding credit card debt is that if it can’t be paid off at the end of every month, it is carrying too much.
The worlds of debt and finance are murky waters for many people. As asking questions is often the first step behind reaching empowerment through information, below are some of the most commonly-asked questions regarding debt.
Which Debt Should I Tackle First?
One of the most valuable services provided by debt counsellors is to help their clients come up with a debt-repayment plan, and an integral part of that is helping their clients understand which debts should be paid down first.
When it comes to those struggling with multiple debts, a person’s home is undoubtedly the most important. As a person’s mortgage or rent is generally the largest debt amount, this is the best place to start.
The next debt amount that should be tackled on the priority list is transportation. As transport is a key aspect of many people’s ability to secure gainful employment, this is also an important debt area to be targeted.
Next, utilities, food, and medical needs are to be considered. Credit card accounts should be focused on once the basic necessities of life are under control.
A credit counsellor will help you prioritize your debt so you know where to start and can work your way down. Another strategy is to simply examine all the interest rates associated with a client’s debt and when possible, to prioritize based on paying off the highest interest rate debts first, and down to the lowest.
What is a Debt-Management Plan, and How do They Work?
A credit counsellor will work with their client to come up with a debt-management plan that will pay down their debt while allowing them to maintain a decent quality of life and standard of living. Credit counsellors will advocate for their clients and work with their creditors to secure as much assistance as possible.
Often, creditors are willing to grant some concessions once they see the individual is working with a credit counsellor in a clear attempt to pay down their debt.
Creditors will sometimes lower their interest rate, waive it, or stop charging late-payment penalty fees. Any one of these options can save borrowers a lot of money and be a great asset in terms of helping them pay down their debt.
Often, a debt-management plan includes the consumer making one payment to the counsellor’s firm, and from that, the credit counsellors makes payments to the creditors. In these instances, the client will receive documentation that the creditors and the credit counsellor are collaborating successfully on their behalf.
How Can I Avoid Building up Bad Debt?
- Know where your money goes
- Balance your bank account
- Know what your bank is charging you in fees
- Track your spending, write it down, and make changes accordingly
- Make a spending and savings plan and regularly re-examine it
- Adjust your budget to allow for inevitable life changes
How do Credit Counsellors Help with Student Debt?
Credit counsellors working with clients with student debt find that many issues arise from individuals deferring this debt. The counsellor works with their client to help them understand their debt volume and what deferring payment is costing them in the long run. A student loan debt-repayment plan will be constructed and implemented.
Unlike credit card or mortgage debt, most times, student loans are indebted to the government; that means that a person’s wages, bank accounts, or tax refunds can be garnished. For clients who are making payments but still struggling, a credit counsellor will analyze whether or not the payments are actually paying down the principal or are only chipping away at the accrued interest. These factors will be an important aspect of any student-loan debt repayment plan.
What are the Most Important Services Provided by a Credit Counsellor?
- Creating a sustainable budget
- Empowering their clients with options available to them
- Comprehensively listing the client’s assets and debts
- Collaborating on their client’s behalf with the creditors
- Discussing bundling options for utilities
- Prioritizing debts to pay off first
- Establishing a spending plan to meet the client’s financial goals
Many Canadians are finding it difficult to see clear of their debt. When a person’s future is clouded by their present debt, this is a good time to seek the help of a debt counsellor. When it comes to finances, pride holds many people back from seeking professional help.
What credit counsellors want those people to know is that they are people too and many have faced and triumphed over their own financial challenges, which is what motivated them to get involved in the financial-assistance industry.
The services provided by an experienced and knowledgeable debt counsellor are invaluable. Not only do they help their clients greatly lower their stress levels, known to have proven health benefits, they assist people in breaking through their debt to the surface of establishing healthy financial habits that serve them well into the future.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|Credit card 1
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.