A consumer proposal is a legal document that allows individuals to repay their debts over time while avoiding bankruptcy. If you consider paying off your debt with a consumer proposal, there are benefits and disadvantages to consider before taking this step. To make the best decision about whether or not it is worth it for you, read this article and then talk to a Licensed Insolvency Trustee.
What are the benefits?
Your Credit Score
Your credit report will show your consumer proposal as soon it goes into effect. The three-year window for Equifax starts when you finish the payments, but TransUnion only keeps six years of data on file after signing or completing their form, depending on which option comes first.
When deciding on a suitable loan, lenders consider your credit report, and they need to know what information will be provided with each application. Consumers can use some simple strategies so that their reports show positive signs of improvement.
This is why some applicants want to liquidate the balance of their consumer proposals sooner than stipulated. They’re banking on the hope that an outstanding credit card will be removed from their report sooner.
Pay bills on time
Some applicants believe that the longer they have for paying down their proposal, the more opportunities will arise to miss payments and nullify agreements.
Starting Fresh sooner
The best way to think about seeking debt relief is like a Band-Aid. Some people peel off the adhesive slowly and carefully, while others want it gone ASAP, so they can have a fresh start–even if that means ripping them right off!
What are the disadvantages?
The financial stress of extra payments
It’s essential to know how much you can afford when paying off your proposal before beginning the process of submitting it. It will help avoid any future financial strain and make sure that there are no missed payments, which would result in the nullification of your consumer proposal.
Missing out on the interest reductions
Going against the clock to pay off your proposal as soon as possible means that you’re ignoring one of its most significant advantages: interest relief. A consumer proposal pauses interest, penalties, and hidden fees, saving you a tremendous amount of money. When will the next opportunity come around?
Paying a consumer proposal faster is always better, but there are some disadvantages when the faster repayment is not made correctly. If you want to pay your debt off more quickly and have the funds for it, then, by all means, consider reducing or eliminating payments on other debts to start fresh faster. But as we have explained before, making extra payments can add strain to your finances, which can be disadvantageous in the long run.
Dana MacRae can help you identify if you can pay off your consumer proposal faster and set up a plan to make that happen. Contact us today for a free consultation about a consumer proposal agreement between you and your creditors.