The combined credit card debt in Canada is approximately $91 billion and this number is snowballing as it has become easier to obtain a new card and lenders constantly increase credit limits for existing clients. Many people think that they have a good handle on their credit card debt. They pay the minimum monthly payment faithfully and think that their balance should be going down. The truth is, credit card interest rates are high and that monthly payment is only going towards the interest.
If you feel like you are over your head in credit card debt and are unsure of where to turn, credit counselling has become an increasingly popular option and here are reasons why more people are turning to it for assistance.
1. Negotiation with lenders
When you are late making a payment or fail to make a payment on a debt at all, you can be charged late fees. If you keep missing payments, the balance will never be paid down and you will keep getting charged for late and missed payments. A credit counsellor can take inventory of all creditors that you owe money to and negotiate on your behalf with each of them in an attempt to reduce or reduce late fees. You can then concentrate on paying off the principal balance.
A credit counsellor can also help you compose a consumer proposal where you offer to pay a reduced amount to the creditor rather than the full balance. If accepted the creditor will not seek legal action, wage garnishments, or liens against your home for not paying the full amount.
2. Debt consolidation
Credit card interest rates in Canada range from 9% to 29% and when you only make the minimum monthly payments you are only paying this interest and they do not go to paying off the balance. As a result debt consolidation loans are a popular choice. Instead of attempting to pay multiple debts with different interest rates, a debt consolidation loans brings all of your outstanding debts together and you pay one monthly payment.
Usually debt consolidation loans have lower monthly payments and have interest rates dramatically lower than a credit card so you can rest assured that payments go towards the balance of the credit card debt. A credit counsellor can assist you in obtaining a debt consolidation loan and ensure that the conditions of the loan are acceptable and favourable.
3. Lenders get paid
Credit counsellors employ a tool called a debt management plan where the counsellor will negotiate with creditors on your behalf to secure a lower interest rate. You would then pay the credit counsellor back 100% of the balance based on the reduced interest rate and they disburse payments to the creditors on your behalf.
Sometimes a debt management plan is more favourable and has a better chance of being accepted when compared to a consumer proposal as creditors still receive 100% of what they are owed, just not at the original interest rate. In this instance they are losing less money than if they agreed to a consumer proposal where they would consider reducing the overall balance of the debt.