Credit Counselors – Can You Really Afford that Monthly Payment

Posted by: Krista McDonald on 12/06/2011

Although there are a few variations on the kinds of professional debt relief programs you can get from credit counseling agencies across Canada, they all involve making a single monthly payment directly to the credit counselor.  Search the net and you’ll find the word “affordable” included with the monthly payment amount again and again. 

Just how do you know it is truly affordable?  Because you trust the counselor?  Because it sounds about right?  Have you thought about what can happen if the payment is too high?

Certainly you want to get out of debt as quickly as possible but if that supposedly affordable monthly payment leaves you with little money with which to occasionally treat yourself to something, you are setting yourself up for failure.  You need to know if you stop making those payments to the credit counselor all bets are off and your creditors can come after you with every legal means at their disposal.

To ensure the monthly payment proposed by a credit counselor is truly affordable, why not compare it to the guidelines used for required payments in bankruptcy?  These standards are based on the expense thresholds set by the government for calculating payments in bankruptcy and reflect true cost of living standards across Canada based on family size.

For example, the threshold allowance for a single person is $1,884 a month; $2,883 for a family of 3; and $3,941 for a family of 5.  If you file bankruptcy and you take home $4,941 a month with a family of 5 your excess income is $1,000 and you are required to contribute half of that towards partial repayment of your creditors during a bankruptcy.  According to the government, that $500 left for you should be enough for emergencies and an occasional treat.

If you have a family of 5 with an income of $4,941 and a credit counselor suggests that $750 a month is an affordable payment, you should definitely talk to another credit counselor.