Before you filed your consumer proposal (CP), your debts were out of control. Your CP gave you relief from your creditors, collectors and even garnishments. It was a very responsible way to deal with your debts – creditors appreciate that.

Once a new reality sets in and you have adjusted to a life of better budgeting and without credit, it’s time to take stock.
  • How well are you balancing your income and expenses?
  • Are you able to save money now?
  • Is the monthly proposal payment uncomfortably high?
  • Do you see yourself needing to replace your car in the next couple of years?
  • Do you look enviously at your neighbors as they take vacations or implement home renovation projects?
  • Are you falling behind in essential expense payments like property taxes and utilities?

Have you had a specific reason to wish your credit history was not in tatters?

Could not rent a place because the landlord was not impressed with your credit history

The bank just smiled when you asked them to increase your mortgage

The cell phone company would not let you buy a subsidized phone and go on a two year plan

The car dealership said “have a nice day” when you wanted to buy a new car

Related article: Impact on your credit history of a consumer proposal

Those are some of the reasons why borrowers in a consumer proposal quickly come to realize their journey is not yet complete. The consumer proposal may have:

  • Gained them immediate relief from their creditors, collectors, and garnishment actions
  • Restored their standing with CRA
  • Converted their debts into a five year, interest free loan for a mere percentage of the original amounts owing
  • Reduced their crushing debt repayment load to a much smaller, single monthly payment
But now it’s time to wrap up the proposal and get on with your life.
Even though most proposals are initially structured as five years in duration, the folks at Hoyes Michalos say the average term to completion in their client base is 3.5 years.

IF YOU ARE A HOMEOWNER

In most markets your home has been blessed with appreciating values over the past few years. Especially in the Greater Toronto and Vancouver regions.

There is potentially lots of equity in your home. Why wait the full five years to pay off your proposal?? Take some equity out of your home now; pay off the consumer proposal now, and get on with your life faster!

In many cases, your monthly cash-flow will improve! It often happens that the incremental mortgage payment you sign up for is LESS THAN the monthly proposal payment.

  • Your trustee (or administrator of your proposal) will thank you for this – they will earn their fees that much faster.
  • Your former creditors will love you too – you just took away the uncertainty of proposal completion, and you also ensured they will get paid faster.
  • Your credit history will thank you! Now you can start the clock from your proposal completion date. With a simple, effective credit history rebuild program, track your score, and watch it rise each passing month.
  • You might be able to free up additional $$ to pay for home renovations, children’s activities of education, a new card, perhaps a family vacation.

Related article: He used home equity to pay off his consumer proposal

IF YOU ARE NOT YET A HOMEOWNER

Maybe you have no plans to ever own a home. But it certainly is possible after completion of a consumer proposal. In fact with a decent sized down payment, some people buy a new home very quickly after they complete the proposal.

But if you are saving for a down payment and you hope to score a high ratio mortgage one day, you need to put some distance between you and your proposal completion date. At least two years. And you had better follow a smart credit history rebuild program at the same time.

If you wait the full five years before you complete your proposal, it may be at least
seven years before you might qualify for a high ratio mortgage.

RECENT CASE – Katie is a late twenty-something who recently filed a lump sum proposal for $13,000. The trustee had suggested a lump sum would go over well with her creditors and they would probably accept less than a five year payment plan. 45 days after the proposal is made, it can be approved.

And within a week or two, Katie’s parents will loan her the money to pay the proposal in full, and Katie will repay her parents over the next few years.

Doing it this way means Katie can immediately:

  • Rebuild her credit history (she will have two unsecured credit cards within four months)
  • Save aggressively towards her down payment
  • Be in a position to qualify for a decent mortgage in two to three years.
Overall, that is FIVE YEARS faster than someone who takes the full five years to pay off her proposal

Related article: Buying a house right after a consumer proposal

How to rebuild your credit history quickly  – download free information

Apply for an unsecured credit card even if you are in a consumer proposal or bankruptcy

Hopefully you will agree paying off your consumer proposal early is something worth aspiring to. If you would like to understand your options, please contact us. Email is info@askross.ca; phone is 416-989-1000, or you can chat right away with us – look at the bottom right of your screen!

Talk soon!

Tip of the Day

A useful tip for RRSP contributions – put money in when your personal tax rate is high, and if you withdraw money, do so when your tax rate is low.

— Money Matter № 111
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