"Credit counselling" services sell people in debt, a debt consolidation program for which they charge fees either directly or indirectly or both. They may say they are non profit but they make a lot of money from servicing you.
There have been cases of outright fraud by credit counsellors who stole the money debtors paid them which was supposed to be sent to the creditors.
How Much Does It Cost?
The fees vary based on the services offered. It may be a fixed fee, an hourly rate, a percentage of the payments made, or a combination of all three.
By using a credit counselling service, you authorize them to negotiate with your creditors in order to make arrangements regarding your payments.
In most cases, you will have to make one regular payment to your counsellor, who will look after dividing the agreed upon amounts among your creditors. There have been cases where the service stole creditor payments.
Buried in each of your monthly payments is a fee or commission for the credit counselling service. They are not free regardless of what they claim. They make a lot of money from this service.
WHAT DOES CREDIT COUNSELLING ACTUALLY DO FOR YOU?
"Credit counselling" is a tool for people in financial trouble, but it should be used with caution.
Be sceptical. These services make their living by selling you their program and they only have one program to sell, so for them, one size fits all.
It will arrange a new payment program with your creditors usually at a lower monthly payment cost to you. The debt is not reduced, payments are spread out over a very long time so they appear lower but they are not.
Help arrange repayment schedules affordable to you, the debtor, and acceptable to the creditor
This may include lower or waived interest charges.
It will stop harassment from collection calls
It offers guidance on money management,
Assist in developing personalized budgets and
Advise on bankruptcy procedures
The counsellor makes all the phone calls and does all the negotiating with your creditors.
Know that the payment schedule may take ten years for you to pay off. You can be free of debt much sooner with a consumer proposal or bankruptcy.
BANKRUPTCY OR CONSUMER PROPOSAL MAY BE A MUCH BETTER FOR YOU
Bankruptcy, may well permit you to recover a good credit rating much faster than credit "counselling".
Negative credit items remain on your credit report for to seven years. This would include the records of your credit "counselling" and a list of your "bad debts."
Bankruptcy will also remain on your record for up to seven years, but you may well be able to re-establish credit after a couple years. Think about that.