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Her financial situation had become so difficult recently Krystal Koglin, 24, had become afraid to answer her phone for fear a collection agent would be on the other end of the line.

Through student debt and reckless spending, Ms. Koglin had dug herself into a $15,000 hole. Early this year, Ms. Koglin decided she had to turn things around, and contacted non-profit counselling agency Credit Canada.

She's not alone. The credit landscape is darkening, and evidence is mounting more Canadians are falling into serious trouble with their finances. Things are likely to get even worse as job losses increase, and people saddled with debt find themselves struggling just to keep up with interest payments.

There has been a “frightening increase” in the number of people seeking out Credit Canada's services, and the worst part is how much more desperate these people have become, at a time when hours are being scaled back, jobs lost, and employment security is scarce, says Laurie Campbell, executive director at Credit Canada.

In Ms. Koglin's case, last month marked the start of what she calls not just a New Year's Resolution, but a “New Life Resolution.” Negotiations with lenders through Credit Canada have allowed her to consolidate her debts onto one bill, on which the interest rate has been frozen. She's living more frugally, sticking to a budget, and hopes to return to university when she gets her finances back on track.

Laurie Campbell is a graduate of the University of Ottawa and joined Credit Canada in 1990. She began her career there, moving to progressively responsible positions and joined the senior leadership team as Program Manager in 1993. In that role she managed 10 office locations with 16 counsellors. She has also been responsible for the agency's education department which presents seminars on money management and credit related issues to over 10,000 people annually.

Laurie Campbell joined us for an online discussion about how you can tackle your own credit situation, and how a counselling agency can help you to dig yourself back out of the hole. Thanks to all those who submitted questions.

Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Cathryn Motherwell, deputy editor, Report on Business; Welcome Ms. Campbell. we're getting quite a few questions from our readers, and I believe that given today's jobs numbers we're into very compelling territory.

I'd like to start with a question from me: Given the compelling number of job losses that we are reading about today, what kinds of things should people be looking at first as they assess their financial situations?

Laurie Campbell: With the siginifcant job losses that we have heard about and more to come, people need to really take a close look and assess their financial situation carefully. They need to be curbing debt now and getting rid of those high interest debts. Budgeting is not a four letter word and we need to get back to the basics of budgeting and living within our means.

Cathryn Motherwell: It's easy to say 'get rid of high interest debts'. Can you articulate just which debts I need to be most concerned about?

Ms. Campbell: It depends on who you owe, for example retail cards have an interest rate of 28.8 per cent interest and bank cards hover around 18 to 19 per cent so these are very high interest forms of credit. Other credit such as lines of credit are lower (less than 10 per cent) . Overdraft is around 21 per cent (a lot of people get trapped in that not realizing how high the interest is). Of course it is always important to maintain your minimum payments at least on your other debt.

Jenn Peterson from Canada writes: Thank you for taking my question. Can you explain the difference between a debt management plan and a consumer proposal? From what I understand, in a debt management plan you repay all of your debt in full, but the banks agree to forgive any future interest. If one of the creditors doesn't agree to the plan, they can keep calling me and garnishing my wages. In a consumer proposal I don't have to repay the debts in full, and all garnishments stop. That sounds good to me, so I am trying to understand why I would be better off doing a debt management plan? Isn't a consumer proposal always the best option?

Ms. Campbell: A debt management plan is where you work with a not for profit credit counselling service and ask creditors to stop or reduced interest and payments. You still pay 100 percent of the principal back over time.

A consumer proposal is done with trustee and is legislated through the Superintendant of Bankruptcy and you propose to usually pay a portion of the debts back over time. You cannot have assets over what you propose and there are strict income rules.

Robert M from Ottawa asks:

Hello, I have two specific questions: 1) What is the burden of proof that is required by collectors before they can initiate procedures against an individual ?

2) What is the best way to protect against a lazy/negligent investigation (for any number of reasons) that results in targeted action on yourself on behalf of the collection agency?

I remember being scared into paying 4k to a collector (due to credit card fraud) after threats to ruin my credit rating. After following up and seeing the credit card application for myself, it was EVIDENT that it was fraudulent. Obviously the mandate of the collection agency does not include due dilligence. I regret paying up and will never do so again.

Ms. Campbell: Hello Robert, good questions…

1. The collector must prove that he/she is collecting on behalf of a specific company which has forwarded the debt to them.

2. If you have been a target of fraud, you must be contact the creditor immediately, report the fraud, destroy the card and report to the police as well if they will take the report. The creditor will usually take a week or so to investigate and reverse the charges…your situation is very unfortunate.

Cathryn Motherwell: Have you seen an increase in the number of people contacting you since the recession started and job losses skyrocketed?

Ms. Campbell: Absolutely, this January is 35 per cent over last January and debt loads have increased dramatically. Our website hits have doubled. We expect this trend to continue.

Cathryn Motherwell: What kind of people call you? How old are they and how much debt do they usually have?

Ms. Campbell: We have people call from all walks of life, old, young and everywhere in between. Debt has no boundaries. Debt levels hover around $20,000 but can certainly be well over $100,000 for some people.

Cathryn Motherwell: Bev Honsberger from Canada offers a suggestion of a book she has found useful. Do you have others you would recommend: An excellent resource for those struggling with debt is the Jerrold Mundis book 'How to Get out of Debt, Stay out of Debt and Live Prosperously'.

With this book and a little discipline and revised thinking habits anyone can get out of debt.

Ms. Campbell: Excellent book, other good ones are Findependence Day by Jonathan Chevereau…Money 101, Ellen Roseman, a tried and true is the Wealthy Barber.

Cathryn Motherwell: If you help someone negotiate a settlement on a debt, how long does it affect their credit rating for? If I get a settlement on a debt, will it seriously hurt my chances of getting a mortgage in a couple of years? what about a car loan or a line of credit? Will it hurt my partner's chances?

Ms. Campbell: We work with clients to usually try to pay back their full debt (without interest) over time. After paying off your debt it stays on your credit record for two years and then is purged. We have a credit card reestablishment program and truly if you want to get a mortgage your best chance is when you are debt free, if you still have debt it is going to be more difficult to get credit…etc. If you go on a program with us and your partner doesn't he/she is not affected at all.

Cathryn Motherwell: One of my colleagues has a question: I'm 25 and I'm trying to establish a good credit rating. But all I keep hearing is 'throw out your cards, use cash only...' If I get rid of my credit card, how can I establish a good credit rating that I can use when a want to apply for a mortgage? I've heard that having no credit rating at all is actually worse than having a bad one. Is that true?

Ms. Campbell: There is nothing wrong with having credit, I myself have a credit card. The problem lies in the fact that credit should be used for your advantage not the creditors advantage. Having one credit card is great, just pay it off monthly and use it for the odd purchase so you can show a good payment history…which helps improve your credit rating….having no credit can be a disadvantage because you have not shown if you are a good or bad risk…tip…you only need one card!

Rod Malcolm asks: My difficulty with debt consolidation is irregular cashflow. How can I work around this?

Ms. Campbell: We certainly work with people who are self employed and not getting regular paycheques. It is worth reviewing your situation to see what options work best for you in your particular situation.

B.OTT from Toronto asks: If you have an old debt to Toronto Hydro, for example, still sitting on your credit rating report, is it possible to pay that debt off and have it wiped off the report? Thanks

Ms. Campbell: Unfortunately it takes 6 years to have derogatory information removed from the credit bureau. You may want to take a look to see what the date the debt went into collections is and then it is 6 years from then. If you do pay it off, at least it will show a 0 balance and will show that on your report.

Anand Jayachandran asks: I had a debt of about $5,000 in Credit cards and I used my Line of Credit (with 8 per cent) to pay off that $5,000. I received an offer from one of the banks with 3 per cent interest for 6 months and so I moved it off to the Bank's card now. The question is, I have $5,000 sitting in my Savings account earning a 2.25 per cent income every month. Should I pay off my debt completely using my savings or should I continue with my credit card balance paying only a nominal 0.75 per cent (net interest) for my $5,000 loan. I can keep that savings for any eventualities in the future. Please advise.

Thanks

Ms. Campbell: My question to you would be …is that an introductory rate or is it a continuous rate? I believe it is probably an introductory rate and in 6 months will increase substantially. Having savings is important for sure and I do not negate that but I am uncertain what you will have paid off in 6 months…if very little you will be hit with a surprisingly high interest rate on the remaining balance and that could hurt. Certainly pay it off at least a month before the 6 month introductory rate is done.

B.OTT has a follow-up question: Can you tell us more about your credit card re-establishment program? Should we make an appointment to come into your offices to take part in this program?

Ms. Campbell: We offer credit card reestablishment programs for people who have finished a debt management program successfully with us. If you are interested in speaking with a counsellor about your situation, please contact a not for profit credit counselling agency in your community for help.

And B.OTT has one last question: Last question: If you wait the 6 years for a bankruptcy to come off your credit rating but it does not come off in a timely fashion, what recourse is there?

Ms. Campbell: You can take your discharge papers proving you were discharged from the bankruptcy in the proper allotted timeframe to the credit bureau (or mail copies) and ask for the information to be removed.

Cathryn Motherwell: Thanks so much for coming online today to take our readers questions. Are there any closing points you'd like to make?

Ms. Campbell: Debt can wreak havoc on an individuals life, not only financially but personally. Debt can lead to problems with your partner/spouse, depression, health problems, addiction problems, problems concentrating and problems sleeping to name a few. People should realize they are not alone. There are not for profit, charitable counselling services across Canada in almost every community. If you are struggling, contact one for help.