Loans while on a debt management plan

Temps de lecture : 3 min
Loans while on a debt management plan in Canada

How Consumer Credit Counselling Can Help You Deal with Debt

When it becomes very complicated or even impossible to pay off your debts, consulting a consumer credit counsellor can help you find solutions to get out of this situation and use your money wisely. Here is an overview of the services that they offer to borrowers who are struggling to deal with their expenses.

Choose your counsellor carefully

There are serious credit counselling agencies out there, but there are also companies that settle for charging fees and promising the impossible, such as guaranteeing that they will reach an agreement with the lenders or restore a good credit rating quickly! Before contacting a consumer credit counselling agency, verify its reputation with established institutions, such as Credit Counselling Canada. You can also consult a counselling service offered by one of these associations, such as the Union des consommateurs.

Take advantage of the services of a credit counsellor

Consumer credit counselling agencies generally offer a range of services for each individual situation, including:

  • Group courses on using credit wisely or how to make a budget and stick to it
  • Personalized and confidential credit counselling sessions to improve your credit history
  • Debt management plans

Draw up a debt management plan

In certain situations, it’s possible to develop a debt management plan. Credit lines, unsecured debts, and credit cards can be included in it. Generally speaking, mortgage, auto loan, student loan, personal loan and types of debts owed to the Agence du Revenu du Québec and the Canada Revenue Agency are not covered. Secured debts are also excluded, since the lender may seize the property at any time in case of unpaid debts. However, a debt management plan will help you refinance your loan.

The role of the credit counselor in the context of the debt management plan

The credit counselor can draw up a debt management plan on behalf of the borrower. In other words, this is a proposal that they will present to the lenders and try to negotiate with them. For the borrower, this lets them consolidate their loans into a single monthly payment, known as debt consolidation loan, the amount of which is compatible with their current monthly income and situation. This approach is broken down into several steps.

The 3 steps of the debt management process

  • The counselor familiarize themselves with the situation and draws up an analysis to elaborate a program.
  • They develop a budget with the borrower and advise them on how to pay off their debts every month. Sometimes, they ask the borrower to sign a written commitment stipulating that they will not take out additional credit.
  • They approach the lenders and creditors to negotiate the interest rates and fees related to the different debts and an extension of the payment schedule.

The impacts of the debt management plan

You should know that, in the short term, obtaining a debt management program might have a negative impact on your credit score and can impact access to credit. However, in the long term, this solution lets you reduce your credit card debt, clean up your financial situation, and improve your rating, as long as you follow the plan by making regular monthly payments. At the end of the plan, it’s possible to apply for a secured credit card to rebuild your credit even faster.

Loan counsellors are not always the best solution!

Consulting a loan counsellor is one possible solution for people facing financial difficulties. But in certain situations, such as when a portion of the debt repayment program is tax-related, it’s preferable to turn to a trustee to draw up a consumer proposal or establish a personal bankruptcy process.

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