Making Sense of Debt Consolidation Services
Let’s face it, the language around debt management and debt consolidation services can be confusing if not outright intimidating. Understanding the terminology can help you get a better grip on how debt management works, and help you figure out what you need to do to get back on track.
Glossary of Terms
Traditionally, debt consolidation involves a lender providing you with a sum of money to pay off all your existing debts. You then make a single regular payment to them to repay their loan. When debt management companies talk about debt consolidation, though, they may be referencing one of several options:
- A credit counselling program wherein you make monthly payments to a credit counselling organization until your debt is paid;
- A consumer proposal, which stops all interest from accruing on your debts as well as all collection actions and lets you make a single, affordable monthly payment to a Licensed Insolvency Trustee (LIT); or
- Alternate options where companies take payment from you with the promise that they’ll settle with your creditors once you’ve saved enough. These alternate options are highly risky, as your creditors can continue to pursue you and damage your credit rating, and you have no way of knowing if your representative is acting in your best interests. It’s not unheard of for these companies to simply disappear with your savings, or if your creditors will accept payment from them.
Debt restructuring occurs in a consumer proposal or during bankruptcy. This term is frequently used by debt counselling companies to describe a number of programs, or when they are referring you to a Licensed Insolvency Trustee. When a Licensed Insolvency Trustee renegotiates your debts with a creditor, they are restructuring your debt.
When a creditor agrees to accept less than what you owe as a lump sum payment, a settlement has been made. If you’re looking at offering a settlement, we recommend working with a LIT to ensure a higher chance of success, in addition to the many other benefits that only a LIT is legally authorized to provide.
Licensed Insolvency Trustee
Licensed Insolvency Trustees are regulated and accredited by the federal government Office of the Superintendent of Bankruptcy. We are officers of the court, and we administer bankruptcies and consumer proposals. Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee firm, and includes experienced estate administrators, credit counsellors, and accountants.
Debt Counselling Companies
By and large, these companies are frequently unlicensed, though some may hold a license to offer post-bankruptcy credit counselling. In many cases, these services are pre-bankruptcy or pre-proposal preparation. Many of these companies require a fee for a referral to a Licensed Insolvency Trustee, though you can approach a LIT directly.
Mortgage brokers are licensed to arrange and administer mortgages.
Credit Counselling Companies
Credit counselling companies are typically not-for-profit agencies that administer a variety of programs wherein your creditors accept a lesser monthly payment over a longer period of time. These programs don’t reduce overall debt but do have the same impact on credit ratings as consumer proposals or bankruptcies do.
Contact Us Today
Still need help understanding debt management and debt consolidation services? Don’t hesitate to get in touch with Baker Tilly Ottawa Ltd. today – we’re here to help you!