Not-for-profit debt counselling
Not-for-profit agencies are structured as registered charitable organizations with the Canada Revenue Agency. They tend to be members of trade associations and adhere to certain standards as a result. Fees for consumers tend to be relatively low and may even be free in some cases.
How can they operate without charging a fee, you may ask? Some of their clients pay fees, but they can also receive donations or funding from creditors like credit card companies.
There is typically no cost to have an initial discussion with a not-for-profit credit counsellor. There may be fees associated with implementing a debt management plan (DMP), which they may recommend to tackle your debt.
A DMP is perhaps the simplest negotiated approach to debt repayment, whereby a counsellor will work with creditors to reduce your monthly payments based on your budget and ability to repay. Some credit counsellors are paid a salary, so that they are not incentivized to oversell DMPs to clients to earn a commission.
If nothing else, consulting with a credit counsellor may provide some direction. They typically can provide resources that those in debt can use to learn more about their options and try to improve their situation on their own.
For-profit debt counselling
For-profit companies are private companies that may also be members of trade associations. They are more likely than not-for-profit organizations to charge fees to their clients, including for an initial consultation. They are also more likely to have credit counsellors who receive commissions for getting clients into DMPs that include set-up and monthly costs.
One of the biggest risks with seeking out debt counselling is the rise of unregulated debt consultants. The lack of regulation may result in the sale of services that are unnecessary or available at little to no cost elsewhere. These consultants may also be limited in the services they can provide.
The role of a licensed insolvency trustee
A consumer proposal is a federal process under the Bankruptcy and Insolvency Act that involves negotiating with your creditors to accept a repayment of only part of your debt. So, while a DMP reduces your monthly payments, a consumer proposal reduces the balance of your debts. This can be an alternative to trying to service insurmountable debt or the extreme measure of declaring bankruptcy to wipe out most or all of your debt.