Who Should Canadians Consult For Debt Advice?

Not-for-profit debt counselling

Not-for-profit agencies are structured as registered charitable organizations with the Canada Revenue Agency. They tend to be members of trade associations and adhere to certain standards as a result. Fees for consumers tend to be relatively low and may even be free in some cases.

How can they operate without charging a fee, you may ask? Some of their clients pay fees, but they can also receive donations or funding from creditors like credit card companies.

There is typically no cost to have an initial discussion with a not-for-profit credit counsellor. There may be fees associated with implementing a debt management plan (DMP), which they may recommend to tackle your debt.

A DMP is perhaps the simplest negotiated approach to debt repayment, whereby a counsellor will work with creditors to reduce your monthly payments based on your budget and ability to repay. Some credit counsellors are paid a salary, so that they are not incentivized to oversell DMPs to clients to earn a commission.

If nothing else, consulting with a credit counsellor may provide some direction. They typically can provide resources that those in debt can use to learn more about their options and try to improve their situation on their own.

For-profit debt counselling

For-profit companies are private companies that may also be members of trade associations. They are more likely than not-for-profit organizations to charge fees to their clients, including for an initial consultation. They are also more likely to have credit counsellors who receive commissions for getting clients into DMPs that include set-up and monthly costs.

One of the biggest risks with seeking out debt counselling is the rise of unregulated debt consultants. The lack of regulation may result in the sale of services that are unnecessary or available at little to no cost elsewhere. These consultants may also be limited in the services they can provide.

The role of a licensed insolvency trustee

A consumer proposal is a federal process under the Bankruptcy and Insolvency Act that involves negotiating with your creditors to accept a repayment of only part of your debt. So, while a DMP reduces your monthly payments, a consumer proposal reduces the balance of your debts. This can be an alternative to trying to service insurmountable debt or the extreme measure of declaring bankruptcy to wipe out most or all of your debt.

Consultants may not be able to assist you with filing a consumer proposal—if that is ultimately the best course of action for you. This can generally only be done with a licensed insolvency trustee.

A licensed insolvency trustee receives licensing from the Superintendent of Bankruptcy to prepare consumer proposals or to administer bankruptcies. The Bankruptcy and Insolvency Act dictates the guidelines for these processes. So, while an unlicensed consultant may be able to provide some support to debtors, they are unregulated and limited in terms of how much they can help.

Where to go for debt advice

Depending on your overall situation, options for tackling your debt may include better budgeting, a debt management program, a consumer proposal or a bankruptcy. Advice from a licensed insolvency trustee at a not-for-profit agency may be the most suitable and trustworthy.

Financial planners, accountants, and other financial professionals may be able to provide some limited guidance, but tackling debt is probably better addressed by experts with very specific knowledge and solutions.

The Financial Consumer Agency of Canada (FCAC) suggests researching agencies through Credit Counselling Canada. It has warned Canadians to be cautious when seeking help with debt and shares information on what to know about that process.

French-speaking Quebec residents can seek out services offered by Associations coopératives d’économie familiale (ACEF) using the member list at La Coalition des associations de consommateurs du Québec (CACQ).

Note that speaking with or working with a credit counsellor will not impact your credit score. In fact, their advice about how to tackle your debt might help preserve or improve your credit score.

The process may be a slow and arduous one and could take several years to work through. But ignoring your debt may lead to a longer path to financial freedom and more damage to your credit score along the way.

About Jason Heath, CFP