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Getting out of Hot Water: Debt Counselling Services


Debt counselling services can be a lifeline for people who are struggling with their personal finances. There are many different companies providing these services and they have millions of Canadians restore their credit rating and their peace of mind.

How do you know if you need debt counselling?

You already know you’re in financial hot water. But how do you know if you need professional help, like debt counselling? One rule of thumb says that when your loans or debts are more than 30 percent of your monthly income, you are in debt trouble. But others say that when you can’t make your payments at the end of the month, that’s strike one. If it happens two months in a row, that’s strike two. Three months and you’re out of chances, and by then you definitely know it without anyone telling you. It also doesn’t matter how much you owe. What matters when it comes to debt counselling is whether or not you can afford the payments. By the time you start getting collection calls it may be too late.

What are the types of services available from debt counselling services?

The main service is called a debt management program. This allows you to repay your debts and avoid the stigma and direct impacts of going bankrupt. The way it works is that a credit counsellor from a debt counselling firm works with you to build a monthly debt repayment plan that you can afford. Then they approach your creditors asking them to accept the lower payment and suspend the applicable interest. Each month you make a payment to the debt counselling firm and that gets divided among your creditors on a pro-rated basis. You have to pay a small on-time fee when you begin the service and then other small administrative fees that are part of your monthly payment plan. There are also credit counselling and support services available to assist you re-build your credit.

How can you become a money manager?

The first thing you should do is to start tracking where you spend your money. Write down everything you spend, in cash or credit, for one week and then you can see where your money is going now. Also, take a look at your latest bank statement or check register, and if you don’t have one, get one! It’s time to figure out where the rest of your money is going. Once you know that, you can determine which areas you might be able to cut back or save on. After this you will know what you have coming in and what’s going out, and where. You are now ready to start thinking about how you can spend your money a little differently and far more wisely. The best way to do this is to create a spending and savings plan to manage your money.

How can you make a budget you can live on?

The next step to that plan is to create a budget. Review your spending for the last week or month and make three lists. The first is the essential spending items. That includes your rent, utilities, and debt counselling payment. Do not include your land line or cable in that essential list. They come later and you actually have options with those items. The second list is for food and transportation. The reason that these are not on the essential list is that you have choices when it comes to transportation and food, and you need to make wise choices about both. You have to eat, but you can shop for bargains, and you have to get to work, but you can walk, cycle or take public transportation, all of which are cheaper than driving a car. The third list is discretionary and it might include recreation like your cable or eating out instead of at home dining. Making a lunch could save you $5-$10 every day. That’s $100 a month you could have to spend on other things if you stick to your budget.

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