When you’re entering a consumer proposal, you’re typically looking at a 60-month term to pay it down. Five years is a long time in anybody’s life, and having an active or recent consumer proposal on your credit bureau can have a serious impact on your ability to access financial services and credit – not to mention the stress of keeping on top of your monthly payments. All of that may leave you wondering: Can I pay off my consumer proposal early?
The short answer is yes. If you have extra income and you want to pay off your consumer proposal early, you can certainly do so.
What are the options for paying off your consumer proposal early?
You have a couple of choices when it comes to paying off a consumer proposal early. Suppose you’ve increased your monthly income (for example, through receiving a raise at work). In this case, you can amend your consumer proposal to accelerate your monthly payments and pay more each month. For example, if you’re currently paying $200 a month and you get a raise, you could up your payments to $250. You can also add smaller extra payments without amending your proposal, and these will serve to put you ahead of schedule on your consumer proposal.
If you have come into a more significant sum of money (for example, through inheritance or your tax return), you can also make a lump sum payment. So if you got $1,000 back on your taxes, you could choose to use all or some of that money to put towards your consumer proposal.
There are no penalties for paying off your consumer proposal early. The real question is, should you?
The advantage of paying off your consumer proposal early
Many people in consumer proposal are eager to get it paid off as quickly as possible for it’s own sake – it’s a major goal to achieve. Not only will you be rid of the stress of the monthly payments, but you also typically see an immediate increase in your credit score. After you finish paying off your consumer proposal, the debts you’ve been paying off will be marked as “settled” on your credit bureau.
A consumer proposal remains listed on your credit report for three years after you finish paying off your debts, up to a maximum of six years. You’ll see another big jump in your credit score when your consumer proposal falls off your credit report.
If you pay extra money towards your consumer proposal regularly or in a lump sum, it will put you “ahead of schedule”, giving you some leeway if you need to skip a payment in the future. We would never advise a person to miss a consumer proposal payment if they can avoid it, but if you have built up extra payments with your trustee, they can use that money to cover a future payment if you need to.
For example if your proposal payment is usually $300 and you have paid an extra $500 towards your consumer proposal, the trustee can take a payment from your “extra” payments to keep you on track if you were otherwise going to miss your payment. Your monthly payment will be met and you’ll now be $200 “ahead of schedule”.
Is paying your consumer proposal off early worth it?
Most people want to pay off their consumer proposal as quickly as possible so they can get their financial lives back on track and under control… but paying off your consumer proposal off early won’t save you money. You’ll still have paid the same amount overall.
The other thing to think about as you make an early repayment plan is to remember that making extra payments won’t positively affect your credit score—additional payments on your proposal aren’t reported to the credit bureaus.
There are also risks to paying extra funds towards your consumer proposal instead of using them to build up your savings. While you may feel you have enough money to increase your payments or pay a lump sum now, if you direct your maximum cash flow to paying off your proposal, you won’t be able to access those funds for an emergency like a car repair.
We all know that life can throw us curveballs. If your circumstances change or you have an unplanned expense, will you still have enough cash to meet your expenses?
If you default on your consumer proposal, your creditors may not accept reducing your monthly payments, and you could end up filing for bankruptcy.
Making the right choice for you
If you’re confident you can afford the extra cash towards your consumer proposal, and it’s crucial for
you to get your consumer proposal paid off early, doing so may be the right decision.
However, Climb’s Accelerator Plan may be a better way to reach your goals.
Imagine you have that extra $200 a month in income. Instead of using it to pay off your consumer
proposal each month, you could instead enroll in the Accelerator Plan. Every time you make a payment,
Climb reports that to the credit bureaus—helping you establish a positive payment history every
The Accelerator Plan also helps you save money for a rainy day. If you need to access your equity early,
we make it easy. If you complete your contract in full, you’ll get your equity back, and you can choose to
use it to pay off your consumer proposal early or put it towards something else. Either way, you’ll have
the added benefit of a positive payment history on your credit report.
Learn more about Climb’s Accelerator Plan by starting with a free credit consultation with one of our