Pay Down Your Consumer Proposals Early With These 4 Options
One of the best and safest debt consolidation options is a consumer proposal. It’s an alternative to declaring bankruptcy and is initiated when a business or person lacks the capacity to repay their debt. It describes how a person or organization is supposed to pay back their debts to creditors.
Typically, the debtor pays money in monthly installments over an agreed period. Because payments are fixed throughout the duration of the proposal, a consumer proposal is a reliable method of debt repayment. Furthermore, once creditors accept your plan, they cannot change the terms.
That shouldn’t however mean that you should take 3 years to pay a debt you can pay in 2.5 years. If you can pay earlier, why not? It will give you financial freedom and peace of mind. How so?
Granted, most times, people have no interest in paying off consumer proposals early for the sole reason that they are interest-free loans. Well, what if we told you that the earlier you pay, the earlier you can speed up the process of rebuilding your credit?
Not just that, but early payments can also save you from the annulment of your proposal, which is bad because it reinstates all the debts you are trying to pay off. What does that mean? — That if you’re unable to pay for 3 months, your consumer proposal can be thrown out of the window and you could lose your assets.
Clearly, making 1 or 2 payments in advance can go a long way in case you have emergencies that leave you broke. It will give you the peace of mind and financial freedom you need to thrive.
It’s also worth noting that consumer proposal administrators get a percentage (based on a government-set rate) of the proposal payments they give to the creditors. Although it has no effect on their overall payment, the quicker you pay, the quicker they get paid.
We however don’t pressure customers to settle a proposal early. We would much rather you maintain a sound monthly spending plan during the duration of the project than worry about paying it off sooner. Nonetheless, if you can manage to pay earlier, we cannot dissuade you since it’s wise. Here are 4 ways to pay off your proposal early:
Pay Every Two Weeks
If your proposal payment is $300 per month for 60 months, instead of paying $300 a month, you could pay $150 after every 2 weeks. By choosing to pay $150 every two weeks, you will add one extra monthly payment to your yearly total. You would therefore finish your loan in 4 years and seven months other than five years.
Pay a Little More Each Month
You could take a part-time job to help you clear your loan faster. You could also be lucky to make extra money from side hustles and business deals. If that’s the case, you could add a bit more to your monthly payments.
Instead of paying $300, you could pay $325. In doing this, you will shorten your proposal time will be shortened by more than 7 months. After all, the extra $25 every month, works up to an additional $300 annually.
Lump-sum Payments
Consider making a lump sum payment to shorten your proposal if you get a tax refund or a bonus from work.
Sell Your Home
If you have some equity in your home but not enough to refinance and pay off unsecured debts like credit cards and lines of credit, a consumer proposal is the preferred debt relief alternative. Most people decide to strike an agreement with their creditors to pay monthly payments equal to the equity because they want to keep their homes.
What transpires, then, if such circumstance changes? You may be moving or decide to downsize. If that’s the case, you might opt to sell your house at some point throughout your proposal so that you can settle your consumer proposal faster. Because consumer proposals leave you in charge of your assets, selling your home is permitted.
Paying Off Your Consumer Proposal Early FAQs
Should You Withdraw Funds From Your RRSP To Settle a Consumer Proposal Sooner?
Similar to choosing to cash in an RRSP to pay off debt, this choice is difficult to make. There are numerous monetary repercussions to take into account. These include:
- To fully pay off your proposal, you must withdraw more money than what is owed to your creditor because any withdrawals will be subject to taxes.
- If you participate in an employer contribution plan, cashing out your RRSP may make your employer stop making matching payments until you make up the lost funds.
- If your RRSP has good returns, it makes sense to leave the investment alone rather than repay an interest-free consumer proposal.
- Withdrawing money now could put your retirement at risk.
Unless you have a very urgent need for credit in the near future and wish to settle your consumer proposal now, we generally do not advise choosing this option.
Should You Take Out a Loan To Pay off a Consumer Proposal?
Although it may be difficult to believe, some businesses may actually offer to lend you money to pay for your consumer proposal. Loans for consumer proposals are encouraged as a quick way to raise your credit score.
Sounds good? Not so fast! We can summarize the issue with this one with one simple word: interest. There are no interest charges while using a consumer proposal but on the flip side, you have to pay interest on a loan.
Even if the lender wants to maintain your current monthly payments, you will still have to pay interest, which means you will have to make payments for a lot longer. That’s why we normally advise you to run the numbers before deciding whether to borrow money to pay off a proposition.
Make sure you’re not paying interest rates of 20%, 30%, or higher throughout the course of the loan. There are trustworthy mortgage brokers that can assist you in creating a plan to rebuild your credit, but an unsecured loan is typically not the best option.
Remember: A consumer proposal should give you a fresh start rather than pile more debt on your table!