Welcome to 2011! Now that the festive season is over, life is getting back to normal. The hustle and bustle of work, school and children's sports activities are back on the calendar. Everyone is busy. But not everyone is happy. That's because either the daily post office delivery or your emails are containing those welcoming Christmas and Happy New Year's wishes. Instead, many families are receiving nothing but bills, bills, bills. When this happens, it suggests that debt is accumulating and worse, your debt is out of control.
It has been reported that household debt in Canada has increased so much over the last 10 years that each individual is holding over $ 41,740 of debt. While mortgages are included in that figure, most of the increase of individual debt is the direct result of unsecured consumer credit or, in other words, credit cards and personal lines of credit.
Brian Denysuik, president and CEO of CreditAid, a leading credit counseling firm, says individuals today hold an average of five to 10 different credit cards. And for a family of two adults, the number of credit cards will often double because each partner / spouse, of course, has their own credit card. Not only that, parents are often financing a cellphone as well as sponsoring at least one credit card for their teenagers. University and college students, on the other hand, can easily become burdened with student loans, car loans and credit cards.
I can just imagine the anxiety faced by an individual who is feeling overwhelmed by debt. Even the banks are becoming worried. What happens when interest rates increase and people start defaulting on loans? What about those individuals who are so much in debt that they are borrowing from Peter to pay Paul? How can one reverse this situation?
Just as an individual is totally in charge of their career, each person is also responsible for managing their finances. But, as Denysuik suggests, this responsibility is actually part of the problem because in his view, most individuals do not know how to manage their finances. They do not have financial literacy because they have never been taught. In his view, people today do not seem to budget and do not plan. Instead, television viewing has taught individuals that we live in an artificial world of instant gratification where people spend on what they want rather than what they need.
As well, Denysuik suggests that financial management, savings and investments have become so complicated that most people do not understand how things work. For instance, when they fail to read the fine print on their credit card agreement, they are oblivious to the fact that two late or missed payments will result in an increase in the ongoing interest rate to an outrageous level of 24-29 per cent. As well, going over one's credit limit will automatically create a new charge of approximately $ 25. Then again, banking charges are also complicated and individuals fail to read the fine print.
As the credit industry has become more complex, there are two challenges people face in dealing with debt. First, most people are embarrassed to acknowledge that they have not managed their finances well and they wait until they can no longer deal with things. There are not a lot of professionals to whom people can reach out for help when they realize that they have an overwhelming debt and credit issue.
One alternative to managing debt and one that should be used sooner than later is to contact and work with a professional credit counseling operating within a licensed and bonded credit counseling firm. Credit attorneys typically come from a banking and / or credit and collections background and are familiar with the lending institutions and how they work.
So what can a credit counselor do for you? What is the process? First, a counselor will work with clients to assess their financial situation by reviewing income, expenses, assets, liabilities, investments, home equity, and credit cards to create a total picture of their affairs. The counselor will then help to develop a plan to get out and stay out of debt. According to Denysuik, one of the most critical solutions to debt reduction is to cut up those credit cards.
Sometimes the challenges of overwhelming debt can easily be overcome by remortgaging a home while others require much more intents negotiations and longer term planning, sometimes up to five years. The credit counselor will conduct those negotiations on behalf of the client and will arrange an orderly payback that allows an individual to live their life. Still, there are times when the best solution is to walk the client right to a bankruptcy trustee.
As you may expect, the field of credit counseling is growing and is becoming more professionalized. Licensed credit counseling agencies typically belong to the Canadian Association of Independent Credit Counselors and this association is taking aggressive steps to develop national standards for its members. According to Denysuik, anyone looking at credit counseling as a profession needs to have a high level of integrity because there is no one-size-fits-all solution for every client.
Credit counselors must also demonstrate compassion as people from any walk of life could find themselves in a difficult financial situation. Many times financial hardship is due to death, divorce or some other unfortunate circumstance. Credit counseling would also be of interest to those who enjoy helping and teaching others and those enjoy negotiating and structuring deals that help people to live a worry-free life.
Denysuik is leading the charge as the Manitoba representative for the Canadian Association of Independent Credit Counselors. His association will continue pressuring government to more aggressively regulate the credit industry as well as provide education to the average person to help them understand this complex financial world.
Denysuik reports that Manitoba is providing leadership in this area by engaging in a collaborative project between the Canadian Foundation for Economic Education and Manitoba Education to ensure that every Manitoba student receives a basic economic and financial education. Hopefully, all these efforts will lead to less personal mismanagement of credit.
Source: Interview with Brian Denysuik, president, CreditAid; Where Is the Money Now? The State of Canadian Household Debt as Conditions for Economic Recovery Emerge, CGA Canada