Many of us have been there – finances are tight, and even making the minimum payments on your credit products has become difficult. Maybe you are opting to make payments on one card each month, or are continually increasing your available limit just to be able to keep your head above water. Whatever the situation, know that there are solutions, one of which is the consumer proposal.
Maybe you have already looked into this option but are asking yourself, ‘will a consumer proposal ruin my credit.’ Among the many things to be considered with this form of debt relief, the impacts are important. That being said, it definitely isn’t the only thing you should be thinking about.
The Process: The process is fairly straightforward. A consumer proposal must be conducted by a trustee in bankruptcy, but it is always smart to have your own representation – someone who can negotiate on your behalf and keep your best interests in mind. A proposal is drawn up that addresses your debt, and this is forwarded to your creditors. Once the majority of your creditors have approved the proposal (they have 45 days to accept or reject it), it is filed and you begin making monthly payments to a trustee, and that is then handed over to your creditors. Most proposals are made over five year terms, but can be paid off in full at any time.
The Benefits: There are many benefits of a consumer proposal. Firstly, it reduces your debt. Since you make a proposal to your creditors with an amount that matches your budget, this can mean a significant reduction in the overall amount that you owe. Secondly, it stops interest. Often, especially with regard to credit card debt, it is the interest that kills you, and so with a consumer proposal the interest is stopped and you can actually make significant payments of the principal, rather than the majority continuing to go to interest. Furthermore, a consumer proposal means a single monthly payment, rather than a bunch of payments on different days (again, a great deal of which goes directly to interest).
The Impacts: Will a consumer proposal ruin my credit? Firstly, if you are considering a consumer proposal, your credit may not be in the best shape as it stands currently, and so before getting even further in over your head, it is best to gain control of your finances. The consumer proposal, like any credit activity, will show on your credit. It will remain on your report for 3 years following the date it is paid in full (so it is better to pay it off quickly). Although it is not considered positive credit activity, you can actually start rebuilding your credit as soon as you enter into a consumer proposal.
If you are thinking about a consumer proposal but are worried about the impacts on your credit, please contact DebtCare Canada today for a free consultation: 1-888-890-0888.