We have all heard the commercials on the radio and television talking about debt consolidations and credit counselling. When you have a debt that is becoming increasingly difficult to pay, these may seem incredibly enticing – but it can be difficult to know what each one means, or if they are in fact even different. So, is credit counselling in Canada the same as debt consolidation, and if not, what is the difference?
Firstly, no, credit counselling is different from a debt consolidation. Many people confuse the two, but there are major differences. Both can represent significant debt relief, but each one requires a specific process that needs to be followed properly in order to be successful.
Credit counselling in Canada – credit counselling is usually not for profit and is usually funded by the bank or your creditors. With a credit counselling proposal, you are essentially going to your creditors and asking to have the interest on your debt frozen and for them to accept a reduced monthly payment based on your budget. If accepted, you make one payment to credit counselling and they disperse the money to your creditors. This means a single monthly payment for you, that you can afford, and drastically increases your creditors’ chances of being paid, on time, each month.
Some things to keep in mind with credit counselling: it does not reduce your overall debt. Although your interest is frozen and your payments may be reduced, you are still on the hook for the entire amount. Additionally, with credit counselling in Canada, the damage to your overall credit rating is the same as in bankruptcy – all ratings turn into R7 and I7 for a period of 3 years from the date the proposal is paid in full.
Debt consolidation – A debt consolidation is when you are approved for a loan to cover the entirety of your debt. You then pay off your debt completely, and just pay that one loan on a monthly basis. With a debt consolidation, many of the same benefits are visible, such as one monthly payment and reduced interest, but without the damage to your credit.
When you have financial challenges and you want to consolidate debt into a single payment, you have a few options, including a debt consolidation loan or mortgage financing. Other options for debt relief may include a consumer proposal or bankruptcy. You viable options will depend on a number of things, including your credit, assets, budget and cash flow, and so it always helps to speak to a debt specialist to determine all of your options.
For more about debt consolidations and credit counselling in Canada, please contact DebtCare Canada today by calling 1-888-890-0888.