Workers gather ouside the Progressive Moulded Products Ltd. in Vaughan, Ont., after learning that company is laying off 2,000 workers. As unemployment rises, so does the number of people turning to credit counsellors. (Colin Perkel/Canadian Press)

As unemployment rises and the economy sinks, more Canadians are turning to credit counsellors to pull themselves out of financial trouble. Counsellors across the country report that their client lists have grown by almost 50 per cent since last year.

But before consumers hand their personal information over to a counsellor, they should take precautions to ensure they are turning to someone who is reliable and competent.

Here's a look at the role of the credit counsellor and how to find a good one. Much of the information comes from the Financial Consumer Agency of Canada, a government agency that helps consumers choose products and services.

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What is a credit counsellor?

Credit counsellors help people pay off their debt and advise people on how to budget their money and use credit wisely. Some credit counselling agencies are non-profit, others are commercial; some charge a fee for their services, while others do not. All are regulated by Canada's provincial and territorial governments.

How do counsellors manage people's debt?

Credit counsellors offer voluntary debt management programs, which see a counsellor take control of a client's debts. The client makes regular payments to the counsellor, and the counsellor distributes those payments to the client's various creditors. The counsellor becomes the main contact between the creditors and the client, and the counsellor works to lower the interest rates and fees the client pays to each creditor.

The Stelco plant is temporarily shutting in Hamilton, Ont., affecting up to 1,500 jobs. Those turning to credit counsellors are advised to find out what happens if they lose their jobs and suddenly cannot make their payments. (Adrian Wyld/Canadian Press)

People entering a debt management program are usually required to sign a contract, and their creditors must agree to be part of the program. Debt management programs usually cover unsecured debt, such as credit card debt or bank line of credit, where there is nothing for the creditor to seize in the event the person defaults on the loan. (Secured loans, such as mortgages or car leases, do not usually qualify).

Participating in a debt management program can affect a person's credit rating. Creditors will usually alert credit reporting agencies that the program has been launched, and the person will end up with an R7 rating, which makes it difficult to access more credit. This R7 rating can last up to two or three years after a debt management program is complete.

What other services do credit counsellors offer?

Credit counsellors offer seminars, courses and one-on-one counselling sessions on managing cash flow, using credit effectively and surviving unexpected drops in income.

How do you find a good credit counsellor?

• Reputation. Make sure the credit counselling agency you choose is in good standing with a provincial or national credit association, such asCredit Counselling Canada. Be sure to also check their standing with the Better Business Bureau. Make sure the credit counselling agency is not the subject of any serious unresolved complaints, such as not paying creditors on time or making false promises to clients.
• Experience. Ask about a credit counsellor's education, training and years of experience. Credit counsellors aren't required to have special training but many do.
• Fees. Counselling agencies, even those that are non-profit, will often charge a set-up fee and monthly maintenance fee. Some will have membership fees, application fees and other charges. Find out about all fees before signing a contract.
• Clear contract. A contract should clearly state how much is to be paid in fees, when payments are to be made, what the client's responsibilities are, and what the agency's role will be. It should also detail what happens if a client's financial circumstances change and the client can no longer make payments. Make sure to obtain a copy of the contract.
• Know what's possible. Beware of false promises. A credit counsellor cannot change your credit rating or erase information on your credit report. The only way to alter a poor credit rating is to show improved credit payments over time.
• Shop around. Research several credit counselling agencies before choosing one — compare their fees, their experience and their reputations. Investigate options other than credit counselling: Would a debt consolidation loan or bankruptcy be more suitable? Could a financial adviser or lawyer be more helpful?
• Be vigilant. Once you've signed up with a credit counsellor, monitor their work closely. Ask for regular status reports, and be sure the credit counsellor can provide a written report at any time. Keep a close eye on your credit report to make sure your credit counsellor is paying your creditors on time.