Accelerating Completion of Your Consumer Proposal
A consumer proposal is a legally binding agreement that allows debtors to repay a reduced amount of their unsecured debts. Despite the maximum timeframe of five years assigned for proposal completion, there’s room for early completion. This article will give you a comprehensive guide on how to pay off your consumer proposal early, aiming at an expedited freedom from financial stress.
Understanding Consumer Proposals
A consumer proposal is a strategic move toward resolving severe debt issues. It’s an arrangement between you and your unsecured creditors where you commit to paying a reduced portion of your debts, possibly up to a 80% reduction. This agreement is facilitated through a well-structured repayment schedule. On completion, your debts to these creditors are considered fully settled.
Why Consider an Early Payoff?
The usual question may be how much time will it take to complete a consumer proposal? While five years is the usual timeframe, applicants often ponder whether they can expedite the process. The answer is a resounding “yes.” The following sections will explore the various strategies to achieve this.
Strategies for Early Payoff
While five years is the maximum allowed timeframe for a consumer proposal, there’s no rule that mandates you to exhaust this period. Here are some methods to speed up your consumer proposal repayment process.
Increasing Payment Frequency
A standard arrangement involves a single monthly payment to your Licensed Insolvency Trustee. However, you can slash your payoff timeline by switching from monthly to bi-weekly payments. This approach reduces the time taken to complete the proposal.
Boosting Your Payment Size
Another strategy involves increasing your monthly payment amount. Even a slight increment can make a significant difference. However, ensure that this move won’t adversely impact your budget.
Making a Lump Sum Payment
You could also consider making a lump sum payment to reduce your debt total and shorten your repayment plan. This approach is ideal if you’ve received a large tax refund, a work bonus, or an unexpected inheritance.
Selling Assets
You are at liberty to sell your assets during a consumer proposal. However, assets pledged against secured debts should be handled with care. If you opt to sell an asset that doesn’t have a secured loan against it, you can use the entire proceeds to accelerate your proposal payoff.
Options to Reconsider
While numerous strategies can help you pay off your consumer proposal early, some options could be counterproductive.
Using an RRSP
Some applicants may consider using their RRSP to expedite their payoff. This strategy isn’t advisable due to its short-term and long-term financial implications, such as potential taxation on early withdrawal and reduced retirement savings.
Taking Out a Loan
Another potentially harmful strategy is taking out loans to pay down the consumer proposal. This approach can backfire, leading to high-interest debts and undermining your debt recovery process.
Perks of an Early Payoff
Paying off your consumer proposal early has several benefits.
Improved Credit Reports
Your consumer proposal is added to your credit report from the moment it goes into effect and stays there for three additional years after completion. Paying off your consumer proposal early can enhance your credit report faster.
Avoiding Missed Payments
An extended payoff timeline increases the chances of missing payments and potentially nullifying the agreement. Early payoff minimizes this risk.
Accelerated Debt Freedom
Some applicants prefer a speedy debt clearance process akin to ripping off a band-aid fast.
Potential Drawbacks
While there are advantages to an early payoff, some potential drawbacks exist.
Financial Pressure
Excessive pressure to expedite your payoff could strain your finances. It’s essential to commit to a manageable payment strategy.
Overlooking Interest Relief
A consumer proposal offers interest relief, a significant advantage that can ease your repayment process. Accelerating your payoff could mean overlooking this benefit.
Impact on Your Credit Report
A consumer proposal will affect your credit score, influencing your loan acquisition ability. However, your score will improve upon proposal completion as you’ve reduced your total debt load.
Improving Your Credit Score
You can boost your credit score through timely bill payments, reducing your credit utilization rate, and avoiding new credit accounts.
Step Towards a Debt-Free Life
Paying off your consumer proposal early is a step towards a debt-free life.
