When debt catches up with you, you might be inclined to panic. You can feel trapped, overwhelmed, or paralyzed by financial constraints. When wage garnishments affect your ability to balance your own budget and collection calls leave you sleepless at night, it’s hard to find a way out. We help clients who don’t know how to move forward with their financial future. One of the most common things we do is file Consumer Proposals in Ontario for our clients, and it might be the right path for you.
Pros and Cons of a Consumer Proposal
As Licensed Insolvency Trustees, at David Sklar & Associates we regularly find that a Consumer Proposal is the better way to help individuals get out of debt. While the pros outweigh the cons, no debt solution is perfect, and you should carefully consider Consumer Proposal pros and cons before talking to a Licensed Insolvency Trustee to file.
The pros of a Consumer Proposal include:
- Reducing the amount of debt you have to pay back, and giving yourself up to 5 years to pay it back in affordable installments
- Halting the accumulation of interest on your debt
- Stable monthly payments that do not change over time, even if your income changes (unlike bankruptcy)
- Putting a stop to wage garnishments and collection calls from your unsecured creditors
- As long as you make your payments, you get to keep your assets
- A smaller impact on your credit score, remaining on your credit history for only 3 years, as compared to the 7 years involved in a bankruptcy
The cons of a Consumer Proposal include:
- Annulment if you miss 3 months of payments, though you can file for an amendment (before missing payments) if you no longer have the means to keep up
- Your credit score is still affected
- Limitation to unsecured debt only, meaning car loans and mortgages are outside of the Consumer Proposal
If you qualify for a Consumer Proposal, the pros outweigh the cons, and it compares favourably to bankruptcy and debt consolidation. Personal bankruptcy involves settling debts but losing non-exempt assets and it remains on your credit history for seven years after. Debt consolidation loans, meanwhile, can leave you paying more interest on a lump sum than you were paying before. The only time debt consolidation loans make sense are when the interest rate is lower than the combined interest of your unsecured debts; for example, if you can get a loan from a bank.
Should You Pay Your Consumer Proposal Off with a Loan?
That’s also the reason you should not try to pay off your Consumer Proposal immediately with the help of a loan. Sometimes our clients ask if it’s a good idea to pay it off right away by taking out a new loan; since your Consumer Proposal comes off your credit history within three years, doesn’t it make sense to pay it off as soon as possible? Most of the time, the answer we tell our clients at David Sklar & Associates is no. That’s because your interest stops accumulating with a Consumer Proposal, whereas any loan will need to be paid back with interest. You save money by staying patient and paying back your Consumer Proposal with time.
Working with us means far more than just filing a Consumer Proposal in Ontario. We can answer all your questions and give you advice about restoring your credit score. We also offer credit counselling at David Sklar & Associates so that you can learn how to avoid falling too far into debt in the future. If you’re in trouble with debt, give us a call.
