If you’re facing financial difficulties and you’re looking for solutions, you may have come across offers to help you set up a debt management program. Essentially, this is an arrangement with your creditors made on your behalf by a credit counsellor or credit consolidation company. It allows you to make smaller, more manageable payments on a monthly basis. Sounds good so far, right? Perhaps…and perhaps not.
While a debt management program can be a viable option, there are definite risks you need to know about before you decide to take that route.
- Unlike a consumer proposal, a debt management program is not legally binding on your creditors. This means your creditors can change their minds and back out of the arrangement at any time, and there’s nothing you or your credit counsellor can do about it.
- A debt management program doesn’t protect you from your creditors, either. They can still take legal action against you, and collection calls can continue. A consumer proposal, on the other hand, halts any legal action by creditors and stops collection calls.
- Your debts could continue to accrue interest (though usually at a lower rate). When you file a consumer proposal, interest charges stop, and you usually pay only a portion of the total debt.
- The fees charged for setting up a debt management program are unregulated and can end up costing you a great deal. (Fees for consumer proposals are regulated by Office of the Superintendent of Bankruptcy and are the same regardless of which trustee firm handles your file.)
- Credit counsellors and credit consolidation companies are currently unregulated in Canada. Pay attention to a company/agency’s advertising and be extremely wary of any that claims to be able to “repair” or “fix” your credit rating. A credit rating cannot be fixed; it can only be improved through paying back your debts and proving to your creditors that you are able to manage your finances. If it sounds too good to be true, it probably is.
Finally, be aware that, because of the lack of regulation, no special education is required and anyone can call themselves a credit counsellor or set up shop as a credit consolidation company. If you are considering counselling, look for a reputable agency that belongs to an association that sets specific standards for its members. Canadian Association of Insolvency & Restructuring Professionals, Credit Counselling Canada, and Canadian Association of Credit Counselling Services are good places to start.
And yes, the credit counsellors at Doyle Salewski are fully accredited. If you’d like to speak with one of them about your financial situation and options, call today for a free, no-obligation consultation with one of our insolvency experts: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926 or book online.