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Debt Management: Read This First!

When you are struggling with debt, a helping hand can be a much-needed relief. But, be careful, not all help is good help. Debt management is a well-known debt relief strategy that helps debtors to repay what they owe, but it has also become a lucrative business. Therefore, it’s no surprise that companies focused solely on debt management were to follow. Some reputable and some not.

There are a lot of debt management companies on the market that make lofty promises to manage your financial burdens. But before you reach out to a debt management company, there are a few things that you should consider.

What Do They Do?

A debt management company creates a debt management plan for you. Within this, they negotiate with creditors to lower your interest rate. They then lump your credit into one amount to create one convenient monthly payment.

There are both for-profit and not-for-profit debt management companies. Going with the not-for-profit company reduces the extra fees that you will need to pay. But regardless, you should expect to pay some sort of monthly fee.

Debt Management Plans

A debt management plan is a debt relief option for those who need help paying back their debts and can afford to do so over a longer time. A representative will contact your creditors on your behalf to negotiate better terms for your debts.

They pool your debts together so that you are only required to make one monthly payment that they then divide and distribute to your creditors. In theory, this should give you relief from collection agencies and reduced interest.

Make sure that you insist on receiving a receipt for every monthly payment that will show you that your creditors are being paid. However, there are some things that a debt management plan simply cannot do.

A debt management plan:

  • Is NOT legally binding
  • Does NOT ensure that all of your creditors get on board and stay on board.
  • Creditors can opt out of participating and you will be back at square one.
  • Does NOT give you legal protection from creditors
  • Wage garnishments won’t stop
  • Legal proceedings against you will not stop

As a result, this strategy may not be worth the effort.


While you are on a debt management plan you cannot open any new credit. This includes credit cards or lines of credit. Make sure that you carefully screen the debt management companies you are considering.

Some debt management companies delay making payments to creditors to get better results in their negotiations. However, this will negatively affect your credit rating. There are also some companies that will charge you high fees that must be paid regardless of whether or not they can negotiate a better rate for you.

Be aware that some debt management companies make unrealistic promises. Remember that they cannot:

  • Guarantee to reduce your debts or interest rate
  • Ensure that creditors will agree to negotiations
  • Prevent creditors from contacting you or taking legal action against you
  • Handle government regulated insolvency proceedings
  • Be used to pay down student or medical debt.

Before you even consider signing up with a debt management company, make sure that you research all of your options. Consider other debt help professionals such as a Licensed Insolvency Trustee (LIT). These professionals are certified by the government of Canada to provide debt relief services.

If you are still considering a specific debt management company do your background research. Check with sites like the Better Business Bureau and your provincial consumer affairs office to make sure that they are reputable. Some red flags to be wary of are:

  • Extremely high fees: most debt management companies charge about the same amount fees. So, if the company you are considering has higher fees that are higher than average stay clear.
  • Pre-paying: Never pay for a debt management service before work has begun.
  • High pressure: Never agree to a debt management plan or sign any contracts if you feel that you are being pressured. They may also want you to sign a power of attorney. But before you make any serious commitment, speak with an LIT to ensure that you are on the right track to financial freedom.

Once you have ensured they are reputable, really consider if this is the type of debt relief that you need. The risk may not be worth the reward.

What Should You Do?

Instead, you may want to look into an insolvency that forgives a portion of or all of your debts. Consider the Consumer Proposal and personal bankruptcy.

Consumer Proposal

A Consumer Proposal is a legally binding debt settlement under the Bankruptcy and Insolvency Act that reduces the debt you are required to repay by as much as 70-80%. A Consumer Proposal can only be administered by a Licensed Insolvency Trustee (LIT).

Your LIT will negotiate on your behalf to reduce your debts and once creditors agree to the proposal they are legally bound to adhere to it. You will make payments as laid out in the proposal, but in exchange, you get to keep all of your assets.

In addition to that, once an agreement is reached, you are given protection from your creditors. This means that they can no longer contact you and any legal proceedings they have against you will stop, including wage garnishments. To qualify for a Consumer Proposal the equal some of your debts must be lower than $250,000.


A Bankruptcy is a legal process under the Bankruptcy and Insolvency Act in Canada that eliminates all of your qualifying debts. It is administered by an LIT and you are given an immediate ‘stay of proceedings.’ That means that you are given protection from your creditors. At that point, they can no longer contact you and any legal proceedings they have against you will stop.

Usually, for first-time bankruptcies you will be discharged from the Bankruptcy in as little as nine months. In exchange for the elimination of your debts, creditors will seize your extra assets, but you are allowed to keep your basic assets. In some cases, you can even keep your house and car.

You probably can’t afford to take risks right now – so to be sure you are getting the most informed unbiased advice – contact an LIT for a free confidential consultation. Today you can take the first step toward freedom from your debt.

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Scott Marshall BBA, C.I.R.P, L.I.T

Scott is serving as Vice President and managing partner of Allan Marshall & Associates Inc. since obtaining his License as a Trustee (LIT) in 2003. Scott graduated with a Bachelor of Business Administration (BBA) from the University of New Brunswick and is an active member of the New Brunswick business community. In past years, Scott has been a valued member of the Wallace McCain institute.