There are credit counsellors who will tell you their debt management plan will not affect a person’s ability to get a mortgage. This is NOT true. For a true credit counselling plan, a R7 designation is filed with your credit report. To a bank that is the same as a consumer proposal which means they are not interested in giving you a mortgage until it is off your credit report.
For a consumer proposal that period is 3 years after the completion of the proposal or 6 years from the start of the proposal whichever is shorter. For a credit counselling plan, it is 2 years after the completion of the plan; however, with credit counselling you are usually paying 100% of your debt so it may take longer to pay off. With a consumer proposal, you may be paying only 30% to 50% of your debt.
Credit counselling is less regulated and the quality of service and fees varies greatly. They are not legally required to have any training. Literally, anyone can call themselves credit counsellors and they will not be breaking any laws. That is why some are somewhat shady. The Government of Canada website actually issued a consumer alert on this – click here.
The Federal government licenses insolvency trustees. They have formal training and are the only ones allowed to set up consumer proposals and bankruptcies. These are legal processes that bind the creditors. If you are having trouble paying your bills my recommendation is to go see a licensed insolvency trustee; however, if you plan to apply for a mortgage or another type of loan within the next 5 years AND you have some equity in your home; then I would check with an experienced mortgage broker as well.
It may be possible to refinance your property or get a second mortgage to consolidate your loans into a smaller monthly payment. This will preserve your credit and allow you to borrow in the future. A good mortgage broker will go through the pros and cons of your options including all costs involved.
