Should I Borrow To Pay Off My Consumer Proposal Early?

Borrowing to Get Out of a
Consumer Proposal Sooner?
Explore the Pros & Cons

If you are doing a consumer proposal as a method to get a fresh financial start, you may be wondering if borrowing to pay off your consumer proposal early is a good idea. While there are advantages to paying off your proposal early, it is important to consider the potential disadvantages and weigh your options carefully. In this article, we will explore the advantages and disadvantages of borrowing to pay off a consumer proposal, crunch the numbers to see if it makes financial sense, and discuss alternative ways to pay off your proposal early.


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Advantages of Borrowing to Pay Off a Consumer Proposal

Improved Credit Report

One of the advantages of borrowing to pay off your consumer proposal early is the potential for an improved credit report. When you file a consumer proposal, a note indicating your filing will remain on your credit report for several years. By paying off your proposal early, this note can be removed sooner, giving your credit report a cleaner look.

Improved Credit Score

Additionally, by borrowing to pay off your consumer proposal, you can potentially improve your credit score. While you are in a consumer proposal, you have no unsecured debt. By getting a loan to pay off your proposal and making timely payments, you can demonstrate responsible credit behavior, which may positively impact your credit score.

Peace of Mind

Paying off your consumer proposal early can also provide peace of mind. By eliminating the risk of defaulting on your proposal payments, you can have the security of knowing that you are on track to becoming debt-free.

Disadvantages of Using a Loan for Proposal Payments

High Interest Costs

One of the most significant disadvantages of borrowing while in a consumer proposal is the likelihood of facing high interest rates. Lenders may require higher interest rates to compensate for the risk of lending to someone who has not yet completed their proposal. This can result in paying significantly more in interest and fees compared to completing your proposal as scheduled.

Going Back into Debt

Filing a consumer proposal is a way to eliminate debt, so borrowing to finish your proposal early may seem counterintuitive. Going back into debt to pay off your proposal defeats the purpose of seeking a fresh financial start.

Higher Risk

By borrowing to pay off your consumer proposal, you expose yourself to the risk of default. If you pledge your car or house as collateral for the loan and are unable to make the payments, you may face repossession of your assets.

Credit Report Impact

Borrowing to pay off your consumer proposal may also impact your credit report. If you pay off your proposal early by taking on new debt, the note about that loan will remain on your credit report for a longer period of time, potentially hindering your credit score improvement.

Crunch the Numbers

When considering whether to borrow to pay off your consumer proposal early, it is essential to crunch the numbers. Calculate the total interest and fees you would pay if you borrowed to pay off your proposal compared to completing it as scheduled. Consider the additional cost and weigh it against the benefits of improved credit and peace of mind.

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3 Better Ways to Pay Off Your Proposal Early

While borrowing may be an option, there are alternative ways to pay off your consumer proposal early without incurring high interest costs. Here are three better ways to consider:

Increase the Amount of Your Payments

If your current proposal payments are manageable, consider increasing the amount you pay each month. Even a small increase, such as an extra $25, can help you pay off your proposal faster without the need for borrowing.

Increase the Frequency of Your Payments

Another option is to increase the frequency of your payments. Instead of making monthly payments, consider switching to bi-weekly or weekly payments. This can help you pay off your proposal sooner and align your payments with your income schedule.

Make a Lump Sum Payment

If you receive a bonus at work, a tax refund, or any other unexpected funds, consider making a lump sum payment towards your consumer proposal. This can significantly reduce the remaining balance and expedite the payoff process.

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While borrowing to pay off your consumer proposal early may seem like an attractive option, it is crucial to carefully evaluate the advantages and disadvantages. Consider the potential high interest costs, the risk of going back into debt, and the impact on your credit report. Explore alternative ways to pay off your proposal early, such as increasing your payments, changing the frequency of payments, or making lump sum payments. By weighing your options and crunching the numbers, you can make an informed decision about the best approach to paying off your consumer proposal.

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