What is Credit Counselling?

Credit counselling organizations are both for- and non-profit services which help debtors gain a better understanding of their debt and financial difficulties and uncover opportunities to become debt free. Typically, credit counsellors are qualified financial professionals who understand the unique challenges debtors face, can share effective budgeting and money management strategies and may be able to work with creditors to negotiate better payment arrangements, informal settlements.

Another way to view a credit counsellor’s role is that of a debt coach. They provide an objective assessment of the debtor’s current financial situation, past financial behaviours and potential financial opportunities to offer guidance, advocacy and key skills throughout the journey to becoming debt free.

Credit Counselling Pros

Credit counselling is potentially valuable for people who require assistance in getting out debt but are adamant on avoiding formal debt solutions such as Bankruptcy or Consumer Proposals. In this case, debtors may benefit from the insight and wisdom of an impartial and informed third party who can offer advice, clear steps to take and referrals to other services.

Some additional benefits in working with a credit counsellor include:

  • Perspective on the causes and solutions to debt problems. A credit counsellor can identify why a person has fallen into debt and offer effective techniques to become and remain debt free.
  • Better long-term money management skills. As financial professionals, credit counsellors can share effective knowledge and advice on budgeting, responsible credit use, banking products and tools and overall personal finance.
  • Advocacy with creditors. Credit counsellors may contact creditors on a debtor’s behalf, negotiate settlements, lower interest rates or alternative payment arrangements to accelerate the debt repayment process.
  • Ongoing support and motivation. Credit counsellors can help debtors stay motivated to get out of debt by assuring them they are not alone in the process and encouraging them through challenging phases of their journey.

Credit Counselling Cons

Conversely, credit counsellors cannot offer Bankruptcy and Consumer Proposal services, even if that is the best option. There is no guarantee that working with a credit counsellor will reduce the total amount a debtor owes and any negotiations a credit counsellor undertakes with a creditor will not be legally binding.

Some additional drawbacks to working with a credit counsellor include:

  • Negative impacts on credit reporting. Working with a credit counsellor will result in the same R7 rating as a consumer proposal – yet does not share the same benefits of halting collections actions, guaranteeing a settlement or providing a clear timeline and dollar value to becoming debt free.
  • Longer timeline and higher payments. A first-time bankruptcy usually results in becoming debt free in between 9-21 months.
  • Consumer Proposals may achieve equivalent results within one to five years. Credit counselling services cannot offer any such guarantees and, depending on the amount owing, could take significantly longer and cost significantly more after interest and counselling fees.
  • No government licensing. Unlike Licensed Insolvency Trustees, the federal government does not license, certify or regulate credit counsellors. Credit counsellors do not operate under the Bankruptcy and Insolvency Act, cannot provide services or assurances offered under that legislation and their actions face far less scrutiny.

How to Find a Credit Counselling Service

When searching for a credit counsellor it is critical to perform extensive research and scrutinize every option intensely. Use a variety of sources to verify their effectiveness, reputation and ability to deliver honest, straightforward and exemplary customer service. Inquire about any specialized training certification and experience. And look for red flags like any unresolved complaints or accusations of malfeasance.

Some resources you can use to aid in your search include:

  • Industry associations: Provincial and national associations hold their members to a high standard and will only recommend credit counsellors who remain in good standing. Consider looking into Credit Counselling Canada, the Canadian Association of Credit Counselling Services and the Canadian Association of Independent Credit Counseling Agencies.
  • Consumer Protection Agencies: The Better Business Bureau and other related agencies can indicate whether other consumers have felt duped or otherwise had bad experiences with a particular credit counsellor.
  • Licensed Insolvency Trustees: Though not credit counsellors themselves, Licensed Insolvency Trustees offer a Free Confidential Consultation and can provide referrals to reputable and effective credit counselling services.

Non-Profit Credit Counselling Services

As the name implies, non-profit credit counsellors are not in the business of making money from debt services. Most of their operating budgets come from grants and private donations. Which is not to say they are free – though they do offer many no-cost or low-cost services. In most cases, their fees are generally lower and meant to cover costs only.

Non-profit credit counsellors offer many of the same programs, services, knowledge, insight and resources as for-profit organizations. But debtors usually get reduced service fees and better peace of mind knowing a non-profit credit counsellor has no incentive to push them in a direction that’s not right for them.

What is a Debt Management Plan?

A debt management plan is a voluntary arrangement between a debtor and their creditors which consolidates all debts into one affordable monthly payment made through a credit counsellor. A credit counsellor will facilitate this agreement by contacting all creditors to inquire whether they are willing to reduce or eliminate interest rates and fees and / or grant an extension on payment dates. If so, the credit counsellor will work with the debtor to craft a workable budget and payment schedule that fits his or her financial reality.

In the best-case scenario, the creditors will agree to the terms of the debt management plan and the debtor will benefit from lower costs and fewer debt payments to manage each month. This often reduces stress and offers a clearer runway to becoming debt free.

However, there are also some notable drawbacks:

  1. Creditors may not agree to the debt management plan. In which case, it cannot move forward.
  2. Creditors have no obligation to honor a debt management plan. They can withdraw from it at any time, for any reason.
  3. A debt management plan does not prevent or half collections or
  4. legal action against. A debtor can still receive phone calls and letters and be the subject of court orders and wage garnishments.

Other Options

Credit counsellors are not the only option available for Canadians to address their debt issues. On the one hand, debtors may choose to apply many of the techniques credit counsellors use on their own – such as reaching out to creditors for reduced interest and fees, better payment arrangements or even partial debt forgiveness. However, for severe debt issues, Licensed Insolvency Trustees offer exclusive access to effective, lasting, legally binding debt solutions.

Licensed Insolvency Trustees must grant a Free Confidential Consultation to evaluate a debtor’s financial situation, understand their challenges, learn their goals and explain their options. They are the only professionals in Canada licensed to deliver both Consumer Proposals and Bankruptcy proceedings under the Bankruptcy and Insolvency Act. And they have a mandate to recommend solutions which are in the best financial interest of both debtors and creditors.

Other options include:


Credit counsellors offer a wide range of coaching, advocacy and knowledge for debtors. They can help evaluate the causes of debt and offer strategies to get and stay out of debt for good. They can also work with creditors and offer informal settlement programs to reduce the total amount owing and plan a path to debt freedom.

However, credit counsellors exist in a range of different forms and their reputations sit on a broad spectrum, from exceptional to extremely questionable. The cost of their services also varies from very low for non-profit credit counsellors, to extremely high. While services they offer, such as a debt management plan, can help consolidate and lower payments, creditors have no legal requirement to honor these agreements and may still use collections or legal action to secure payment.

For debtors considering credit counselling, it’s important to do extensive research and ensure the business they choose has a good reputation with past customers and professional associations, are transparent about the cost of their services and do not promise more than they can deliver.

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