What You Should Absolutely Know About Debt Management ProgramsJan 28, 2016
The debt-to-income ratio has risen once again in Canada to 164.6 per cent, meaning Canadians now owe just under $1.64 for every dollar of their disposable income. If you’re considering debt management programs in the Northwest Territories, make sure you’ve conducted research on debt relief agencies before signing any paperwork with them. It’s an unfortunate truth that virtually anyone can be called a ‘credit counsellor’ or ‘debt consultant,’ without a great deal of regulation of their credentials or years of experience. With this in mind, it’s important to make an informed choice about who you go to for help to protect your money and credit rating.
What are credit counselling agencies?
Credit counselling agencies offer many services to help consumers regain control of their debt. A popular service they offer is a Debt Management Program (DMP). A DMP is an informal proposal made to your creditors through the help of a debt consultant or a credit counsellor. Its aim is to reduce your overall debt repayments so you can be debt free faster. The counsellor or consultant will contact your creditors to negotiate a reduction in interest rates and fees on your debts. Once you’ve signed their contract, you make regular payments to the agency itself, who will then forward those payments to your creditors.
While this service can be useful to you, there is some vital information to keep in mind before signing any contracts with an agency:
- Before even going to an agency for help, consider calling your creditors and bank directly and talking about your financial situation. They might offer you a lower interest rate or combine your debts into one loan for a lower payment. Taking the initiative to pay off your debts, but being honest about your situation directly with the creditor can be a better alternative to going to a third-party.
- If you do decide to go to a credit counsellor or a debt consultant, check for credentials. Reputable firms are affiliated with a national or provincial professional association like the Canadian Association of Insolvency and Restructuring Professionals or Credit Counselling Canada. Ask for their memberships in advance. Shop around for different companies before committing to one. This is important so that you get a better understanding of the fees they charge their clients.
Once you’ve chosen to go with an agency, ask about their rates and the services they will offer you:
- Will they provide monthly statements of payments? This is key to prevent further damaging your credit score. You should have proof that the money you give to the agency is being used towards your repayment plan and is being done on time.
- What fees will I be charged?
– Initial set-up fee?
– Monthly maintenance fee?
– Application fee?
– Membership fee?
– Upfront fee or a fee per creditor?
And what if you can’t afford the fees? Will they reduce or eliminate them? It’s crucial to know about anything and everything you will be charged for so there are no unpleasant surprises.
Lastly, you should know that filing an informal proposal with creditors through a debt management program won’t necessarily stop legal action taken against you.
Alternatively, a formal proposal – called a consumer proposal – is another option you can take for dealing with your creditors. Only a licensed Trustee in Bankruptcy can administer it and it stops legal action taken against you. If you’re curious about other debt repayment methods, consider using this debt repayment options calculator.
Be in the know this New Year and take meaningful steps to becoming debt free. Join the conversation on Twitter by using the hashtags #LetsTalkDebt, #BDODebtRelief, and #Mythbusters.