Credit Counselling Instead of Bankruptcy
With bankruptcies at an all-time
high, if you are in the midst of
dire financial difficulties, filing
for bankruptcy may seem like the
only way out.
But wait! There are other, less
damaging ways to work yourself out
of these situations.
Despite the fact that filing for
bankruptcy would wipe out most of
a person's debt, giving him
or her a so-called 'fresh
start', the headaches don't
stop: they just take on a different
form. Filing for bankruptcy, after
all, not only puts a 'black
mark' on a person's
credit record, making it difficult
to borrow and rebuild credit, but
there may also be emotional distress
suffered as a result of embarrassment,
shame, or from losing assets like
a family home.
Credit counselling: A viable alternative
Credit counselling is a little-known,
but more often than not very effective
way for you to work your way out
of financial difficulties. There
are over 40 non-profit credit counselling
agencies in Canada alone, which
collectively administer tens of
thousands of debt management programs
each year.
What credit counselling agencies
do
Credit counselling agencies provide
assistance in three ways:
Confidential counselling. You can
elect to have a professional counsellor
work with you to review your financial
situation, discuss alternatives
and help you find the best solution
for your needs, including assisting
you with preparing an appropriate
budget.
Debt management programs. Under
structured debt management program,
the agency will assist you with
paying creditors by taking regular
deposits from you and divvying the
money up fairly among the creditors
you owe. The agencies work with
creditors to lower or eliminate
interest charges, or even to reduce
the total amount you owe to certain
creditors. Not only do they help
you deal with creditors, but this
program will also stop bill collectors
from calling you all the time.
Education. Many credit counselling
agencies offer educational workshops
to businesses, community groups,
schools and the general public.
These seminars focus on personal
budgeting and using credit wisely.
What it costs
If you just seek advice from a credit
counselling agency, there is usually
no charge to you. If you are in
a debt management program, the credit
counselling agency may take an administrative
fee of up to 10% of the money that
they distribute to creditors on
your behalf.
Also, because creditors would rather
get some money from you than nothing
at all (which is what would happen
if you went the bankruptcy route),
they subsidize credit counselling
agencies. Funding for not-for-profit
credit conselling agencies is also
provided through sources that include
the United Way, government grants,
and voluntary contributions.
Slow but sure
The toughest part of a debt management
program is committing to stick to
it. Debt management, after all,
can go on for several years, whereas
bankruptcy proceedings finish within
a matter of several months. However,
most people find that there is satisfaction
in sticking to the program and working
hard at not only correcting their
financial mistakes, but building
a strong foundation for the future.
Proven results
According to the Ontario Association
of Credit Counselling Services,
almost 70% of clients’ financial
situations improve as a result of
credit counselling, and less than
2% of clients who finish a debt
management program get into credit
trouble again in the future.
In summary
A credit counselling agency can
help you learn how to cope with
the financial situation at hand
(such as dealing with bill collectors),
guide you through getting out of
debt, and help you plan for your
future by teaching you how to effectively
budget and manage your money. The
advice and planning provided are
often all that many people need
to help them find their way back
to financial stability.
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