As millions of Canadian families continue to struggle under the burden of debt, more and more consumers are looking at credit counselling to see if they can find a real way out of debt. Credit counselling allows Canadian consumers to consolidate debt into one low monthly payment, regardless of credit scores. By reducing the interest rates applied to their unsecured debts, consumers can reduce debt more efficiently - often getting out of debt completely in just five to seven years, instead of the few decades it usually takes using traditional payment methods.
The primary benefit of credit counselling is that it allows a consumer to consolidate debt even if they have bad credit scores. Other options for consolidation require you to have excellent credit scores in order to qualify at the right interest rates; if not, you either cannot qualify or could make your situation worse if you qualify on the wrong terms. By contrast, credit scores are not a factor in enrolment with a debt management program through a credit counselling agency. Since a credit counsellor works with creditors and negotiates on your behalf, your credit scores are not considered when you are getting approved for the program.
While this makescredit counselling and debt management programs more accessible for a wider range of consumers versus other debt consolidation solutions, it also leads consumers to be concerned over the affect credit counselling may have on their scores in the future. For instance, if your credit has not been affected by your financial hardship yet and you still have excellent credit scores, you may have a concern that a debt management program will negatively impact your credit rating.
In truth, there is a limited penalty in Canada for paying debts back on an adjusted payment schedule through a credit counselling agency. The debt management program will be reported on your Equifax credit report for three years from the date the program was paid off. In your TransUnion credit report, each account included on your debt management program will remain on your file for two years from the date the program was completed.
In any case, this penalty is nowhere near as harsh as what you face with other options, such as debt settlement, consumer proposals and bankruptcy. All of these financial solutions incur a penalty that remains on your credit reports for no less than six years. During that time, you will have an even bigger problem securing new loans and opening new lines of credit than what you would experience with credit counselling. As a result, while you will need to be prepared for some credit penalty, a debt management program is still usually a better option versus the alternatives.
Connie Solidad has been writing about finances and debt consolidation for years. She's an expert in the industry and writes about credit counseling and debt management options. When Connie is not working, she loves playing with her two dogs in Tampa, Florida. To learn more about debt management refer to ConsolidatedCredit.org.