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Credit Counselling: How To Get Help With Debt

If you ever find yourself in consumer debt, serious debt, someone may suggest credit counselling services to you. Even if you think it’s unnecessary, if the hole you’re in is large enough, it may be time to consider it.

You’re Not Alone

Canadians carry a lot of debt. We have access to a lot of credit, and we use it. On credit cards alone, Canadians carry an average of $4,000 in credit debt, and that isn’t including what people have tied up in loans and mortgages.

Credit Counselling

Some of us rack up credit cards to their literal end. In fact, far too many of us do. It’s all fun and games using money that isn’t ours until it runs out and we have no way to pay it back. Then when we really need the money, it’s not there.

Eventually, collection agencies start calling and ringing doorbells. It’s not somewhere that anyone wants to end up. 

Getting out of debt isn’t easy. Especially if it’s your habits that got you there, rather than extreme life circumstances. But if you need to get out of debt, there are things you can do immediately, and over the long term, to repair what is broken.

You may be able to do it on your own. Or you may be forced to bring in help.

How Can I Get Out Of Debt Fast?

There is no quick fix to get out of debt. Don’t we wish! But you can make changes today to stop accruing and start paying them down.

Stop Using Your Credit Cards

Cutting up your credit cards is easier said than done. We are very used to whipping out that plastic when our accounts are low or we want to keep cash handy in our accounts. In today’s world, we all-too-often rely on our cards for online purchases. But if you don’t have the cash, unless it’s vital, put the card away. Don’t buy it. It’s that simple. Take them out of your wallet so that you’re not tempted to use it. Better yet, cut them up.

Unless you’re one of those people who pay their card off every month, a credit card is not a method of payment you should ever rely on.

Scrutinize Your Spending

You may think you know where your money is going, but do you actually? Look at your bank and credit card statements and highlight what you spend your money on. If you regularly buy $5 lattes, that’s an easy thing to eliminate. No one NEEDS daily lattes.

Do you have house cleaners? Buy multiple lunches a week? Do you have cable, Netflix, Crave, IPTV, Amazon Prime and/or Spotify?

Many of us get into debt like death by a million paper cuts. Small expenses here and there add up to huge debt. Take away some of the small expenses and you’ll notice a difference by the end of the month in how much money you are left with.

Pay More Than The Minimum on Your Debts

When you spend less on things you don’t need, not only will you cease getting yourself into more debt, you will have more money to put onto your debts. By paying just the minimum, you pay more in interest every month than on debt. You’ll never get your debt under control at that rate.

If you can, double up payments and make two a month. It’s surprising how that small incremental change has a huge impact on your debt.

Put Unexpected Financial Boosts To Your Debt

There is nothing better than getting an unexpected windfall. Think of all of the fun things you can do with that newfound money! Especially if you’re in debt and haven’t been able to buy much. Yay free money! Wrong. It’s not extra money for you. It’s unexpected help to pay down your debt.

Put all of that money on your debt as if you never had it in the first place. Because you didn’t. You borrowed it from your credit card.

Triage Your Debt Repayment

It may seem logical to pay your smallest debts first to get rid of them, but you should actually do the opposite; pay off the biggest debts with the biggest interest rates first. Those are the debts you pay the most on each month. Get those out of the way and deal with the lower balances and lower interest rates later.

Consider Credit Counselling

If your debts are unmanageable and paying them down, much less off, seems like an impossibility, it might be time to consider credit counselling. A credit counsellor can help advise you and work with you to get your debts under control, once and for all.

What Is Credit Counselling?

A credit counsellor is there to help people in over their heads in debt come up with a debt management plan. They then go to your creditors on your behalf to offer a repayment plan that they will accept. Typically, you pay back less than creditors would receive if you had paid your debt in full. The alternative for them is a potential default, and never getting any money back from you. For that reason, creditors will entertain a plan presented by a credit counsellor. Often times, your interest payments are waived but not your debt owed. But each plan looks different based on individual circumstances.

What Does Credit Counselling Do?

At its core, credit counselling ensures creditors stop bugging you, and your debts get paid. At the point you go to a credit counsellor, you have likely already exhausted all other options to get your debt under control. A credit counsellor will support your efforts to rid yourself of consumer debt and get you back on the path to liquidity.

A credit counsellor sits down with you to go over the entirety of their debts. They will then discuss what a reasonable monthly payment would look like, and one you can manage. They then go to creditors on your behalf to negotiate payment terms.

To you, it will feel like a consolidation loan. All of your debts will be rolled into one monthly payment. The difference is that this process is a legal one and you work with a licensed insolvency lawyer. Because of this, once you’ve gone to credit counselling, your credit will take be affected.

How Does Credit Counselling Affect Your Credit?

The minute you sit down with a credit counsellor, your credit report is updated to say you are engaging help with your debt. If you apply for more credit while you are in the process of repaying the old debt, the creditor will see that note on your file. It could very well impact their decision to give you credit. That note sits on your credit report for two-to-three years before it disappears. That is not necessarily a bad thing if you struggle with debt management. But obviously, it can be a concern if you need a loan in the immediate future. It is definitely something to consider before visiting a credit counsellor.

How Much Does It Cost

Credit counselling is a last resort for many people who can’t afford to pay their bills. Because of this, there are many low or no-cost opportunities to get credit counselling. Services like Credit Canada offer credit counselling support, and does not turn anyone away for lack of ability to pay.

How to Get Out Of Debt On A Lower Income?

If you struggle to make ends meet, the idea of paying off debt may seem like a pipe dream. It’s hard to put extra money on your debt when you have little extra money. But just because it’s hard doesn’t mean it’s impossible.

Budget

It’s time to really lay out your expenses and reduce or eliminate all elective spending. If you don’t need it, don’t buy it. For example, eliminate restaurants and fast food and start price matching and couponing if your food bill is high. There are even ways to reduce your necessary expenses. Conservation in certain areas, like electricity and water usage, can help reduce your budget to be inline with where it has to be, so that you can afford to eat and pay your debts.

Focus

If you have three credit cards with balances and think putting chunks on each one each month is the best thing to do, think again. This is one of those times where it is worth paying the minimum – but only to some debts. Tackle the biggest debt first, and concentrate on getting that one under control. Once that debt is gone, focus on paying more than the minimum on the next largest debt.

Increase

Increasing your income is easier said than done. But if you’re in serious debt, it’s time to consider bringing in some extra money. There are a lot of ways to do this without having to stretch yourself thin. Depending on your skillset, maybe you can pick up some freelance work to do on the side. Or perhaps you can pick up a part-time retail or warehouse job and put the entirety of those earnings onto your credit. Once your head is back above water, quit and get back to your regularly scheduled workday.

Options

Consider all of the options available to you to pay your debt down. Debt consolidation is an option that may work for you.

Put in the most basic terms, a debt consolidation is a big, low interest loan, that is used to pay off a bunch of smaller debts, usually that all have higher interest rates. The idea is having one payment, instead of many, and at a lower interest rate than you were previously paying, makes it easier to manage and pay off existing, accrued debts.

It also can’t hurt to call your credit card companies to see if they will consider lowering your interest rates. Having a lower interest rate means more of your payments go towards paying down the principal debt. If your credit report is mostly clear, a credit card company is more likely to consider lowering your interest rate. If they won’t, consider applying for a new credit card with a lower balance and transfer your balance. The trick is to cut up the other credit card so that you don’t accrue more debt.

Restraint

All of the efforts to pay down your debt will be for not if you get back to old habits. The key, especially if you’re on a low income, is to avoid getting back into the cycle of debt and to stop relying on credit to live. You may have to rely on it from time to time. But, you can avoid the bad habits that exacerbated the debt in the first place, you can limit ever getting back into the pit of debt you found yourself in.

How To Get Out Of Debt With Bad Credit

It’s hard to get a consolidation loan to pay off debt when your credit is bad. The irony. But even if you have bad credit, there are things you can do to get your debt under control.

Get Your Credit Report

You need to know what you’re really working with. The only way to know for sure how bad your credit is, is by looking at it. Both Equifax and TransUnion provide access to your report. Review it to see if there are any mistakes or idiosyncrasies. It can happen, and if there are errors, they can be unnecessarily hurting your credit.

Highlight where your credit is hurting so that you know what to fix going forward.

Make A Plan

And make it a reasonable one. There is no point in making a strict, hard-to-follow plan. The more realistic a plan, the more likely and able you are to stick to it. Lay out your variable expenses and your fixed expenses and see where and what you can cut so that you can put more money onto your debts. Set up automatic transfers on a monthly basis so that you can mindlessly pay your bills. This not only makes sure your debts are paid, but also improves your bad credit.

Consider Credit Counselling

If your credit is damaged almost to the point of no return, and you want to avoid bankruptcy, a single, lower payment might be the only answer. That’s why credit counselling exists, and if you have no money and poor credit, now is the time to reach out.

How To Get Out Of Debt Without Ruining Your Credit

Your debt load might feel insurmountable, but it never really is. There are always ways to tackle debt, with the right plan and motivation. You may fear the impact credit counselling will have on your credit. The reality is, if you don’t pay your debts, your credit is damaged anyways.

Thankfully, there are ways to deal with your debt that won’t kill your credit.

Go it alone

If you have the self-motivation, set yourself up for success by taking all of the advice listed throughout this article on ways to tackle your debt without having to engage a credit counsellor.

Ultimately, it’s about making a plan to have excess cash to put towards debts, whether that means bringing in more money or cutting expenses. By taking control of your income and spending, you will be able to tackle your debts without a hit to your credit. Use a debt repayment calculator to see what you need to put towards your debts, and how long it will take to pay them off.

Bring In Support

Engaging the help of a professional won’t automatically hit your credit. Sit down with a financial advisor to help explore debt management options you may not have considered. Advisors can review your assets and expenses and look at your income and spending to offer educated advice. In addition, they can help set you up with a debt management program.

Debt Management Program

Credit counsellors manage debt management programs. You pay a monthly payment that the counsellors disperse it to your creditors. To qualify for this program, your creditors must agree to allow the agents to pay on your behalf. It will take, on average, about three to five years before the debt is paid off. Failing that, the counsellors create a consumer proposal.

Consumer Proposal

A consumer proposal is one of the last steps to avoid bankruptcy– but your credit rating will take a hit.

A Bankruptcy Trustee facilitates the process of setting up a consumer proposal. The trustee reaches out to your creditors and says something along the lines of, “Mr. Smith carries a $14,000 debt with you that he can never reasonably pay off. He wants to avoid claiming bankruptcy where you will get less, if any, of the money owing. If he pays you $X, can you consider the debt settled?”

This is a simplified version of what happens, but ostensibly, your creditors will take something over nothing at all, if the proposal is reasonable. This is a legal process and it will affect your credit score.

Does Credit Counselling Work?

At the end of the day, it’s only as successful as you are at getting your spending and debt management under control. Credit counselling can get you back to a place where you’re not drowning in debt, and where you can make wise financial choices going forward.

If your debt feels like a never-ending blackhole, it’s not. It’s never too late to dig yourself out.

If all else fails, sit down with a credit counsellor to create a plan. Then execute it to end the cycle of debt.

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