Sometimes credit counselling is the only way, short of filing for bankruptcy, is the only way to stop calls and lawsuits from collection agencies. When it comes to your credit, good or bad, of utmost importance to look at all of your available options before you make a decision. One of the steps you should take to improve your credit include verifying your credit counsellor’s licensing and credibility. Read of to learn some of the reasons why you might need credit counselling, and some of the benefits of meeting with a credit counsellor.
1. Reasons to Use Credit Counselling
Poor credit and outstanding debts can have a negative impact on your life. A low credit score can lead to loss of assets like your car or home, the inability to get new credit, the inability to obtain a loan, and a consumer proposal or bankruptcy.
It is possible to recover from bad credit but to do so, you need to get out from under your debt before it consumes you. One option is to work with a Licensed Insolvency Trustee to help you set up a plan to get your life back on track when it comes to money and debts.
In Canada, if you owe less than $10,000, credit counselling is a possible option because you have more options in paying it back.
2. Evaluate Your Debts
Before any decent credit counsellor will be able to help you, he or she has to understand the realities of your financial situation. This is often the first step in your customized counselling plan.
3. Obtain Budgeting Advice
Your credit counsellor will help you create a budget that you can follow. Keeping to a budget is important because it helps you manage your money and reminds you not to spend more than you earn. A good credit counsellor will help you learn how to create a realistic budget that you can follow. One of the goals of a good budget is to allow you to live in a way that is comfortable to you so you don’t give up and go back to your old spending ways. If you want to succeed, you need to follow a budget, and once you know how to write one, you are one step closer to success.
4. Negotiate with Your Creditors
Your credit counsellor will act on your behalf and get in touch with your creditors. He or she will work out a reduction on your interest rates, which will help you to pay off your debt quicker and easier. Lower interest rates will give you lower monthly payments. Furthermore, more of your payments will go towards your principal so you can pay down your debt even faster. Bear in mind, however, that depending on the amount you owe, you may be paying off your debt for several years.
5. Debt Settlement
If you owe more than $10,000, a debt settlement program is a more viable option because sometimes your creditors will even agree to reduce the amount you owe with the promise to make monthly payments for a set amount of time. This won’t affect your credit as much as a bankruptcy or consumer proposal.
6. Consumer Proposal
A consumer proposal is an option to consolidate your debts and to only have to pay back part of what you owe. This option depends on how much you owe and what you own. It will typically greatly reduce how much you have to pay back, but your creditors do have to agree to the proposal. This option will impact your credit rating almost as much as a bankruptcy.
Bankruptcy means your creditors don’t have a choice but to write off your debt, as long as you follow the requirements laid out during the time when you file for bankruptcy and when your bankruptcy is discharged. A bankruptcy will stay on your credit report for up to seven years.