The holiday hustle and bustle is over for most Canadians but now, as the bills begin to roll in, the busy season has begun for credit counselling services.
Scott Hannah, president and chief executive of the Vancouver-area-based Credit Counselling Society, said there's a pick up in inquiries every year as the bills for sometimes too-generous decisions made in December start coming due.
“January is a great time to reflect on what they want to do differently this year – whether it is lose weight, improve their finances or whatever their case may be,” he said.
“Typically, it starts around the middle of the month and coincides when a lot of consumers are just receiving or expecting the statements on their credit cards.”
While financial planners urge Canadians every year to make a plan for their holiday spending, there are some that inevitably don't and overspend or don't stick to a plan, despite the best of intentions.
Pat White, executive director of Credit Counselling Canada, said her organization has been seeing more clients aged 50 and over looking for help in recent years.
“We're seeing more of that side of the population where they still have debts at a time that we think people should be thinking about retirements without debts,” she said in an interview from Brantford, Ont.
Ms. White said as a general rule of thumb, if you can't pay your debts as they come due, you should be seeking help.
“If you're behind on things like utilities, those are obvious signals things are not going well,” she said.
But even if you are current on your bills, but feel stressed or are unable to sleep, she said it is better to seek help before a crisis emerges.
Before you meet with a credit counsellor, experts say you should make a list of your debts, including who you owe, how much, account numbers and when you last made payments as well as a list of your assets.
People also should take with them a statement of income like a pay stub and some idea of their living expenses.
Ms. White said counsellors start with an assessment of a client's financial health before examining their options, including looking for ways to reduce spending and increase income.
“Some people may say, we certainly can cut back on that and it wasn't until we went through this exercise of looking at our expenses did we realize that we were spending more than we thought in one area or another.”
If it is possible, Ms. White said one option to consider may be a bank loan to consolidate other higher interest debt such as credit card balances or a mortgage refinancing that could be used to pay back other borrowings.
But if those options aren't enough, Ms. White said a voluntary debt repayment program may be a possibility.
Under a voluntary debt repayment program, a credit counselling agency contacts lenders and makes arrangements in an informal way to reduce payments and stretch them out over a longer payment. The advantage to the lender is that they receives all that they are owed without having to resort to harsher measures.
There are also the options of bankruptcy or a consumer proposal.
A consumer proposal sees someone repay a percentage of their debt over time, while a bankruptcy is a declaration that someone has nothing left to pay their debts.
“People often think that those are quite drastic measures, but it depends on the circumstances of the person and those options may be the only things that are really viable for them,” Ms. White said.
But Ms. White said the majority of those her agency deals with only require counselling, while around 25 per cent end up taking more drastic steps.
According to the Office of the Superintendent of Bankruptcy Canada, there were 6,259 consumer bankruptcies in October, 2011, the latest month statistics were available, down 20.2 per cent form 7,844 in October, 2010. The number of consumer proposals totalled 3,709 for the month, up 3.1 per cent from 3,598 in the year ago period.
Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have repeatedly urged Canadians to reduce their debt levels, which stand near all-time highs.
Though economists don't expect the central bank to raise interest rates until perhaps as late as early next year, it is just a matter of time until they come off their near record lows and drive up rates for loans such as lines of credit and variable rate mortgages tied to the prime rate.
Mr. Hannah said with interest rates still sitting near record lows, now is the time to get one's financial house in order and pay down debt before rates start to rise.
He suggested that even those who aren't in financial difficulty should take an opportunity to review their finances to make sure they are on track.
“It is hard to be motivated to save money, especially when the interest that you are being paid by your financial institution maybe one or maybe one and a half per cent,” Mr. Hannah said.
“However, having savings on hand to deal with expenses like car insurance or Christmas is far better than not saving funds, using credit cards and then having to pay for those purchases at 20 or 28 per cent interest.”
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