Category: Debt Management

Can I Pay Off My Consumer Proposal Early?

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
month.

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
experts.

Author: Climb

What is a Credit Builder Account?

With bad or little to no credit history getting a loan may seem impossible. A Credit Builder Account is designed to help you boost your credit score which makes approval for loans, mortgages and credit cards, more likely.

A Credit Builder Account (also known as Credit Building Loan, Fresh Start Loans, Credit Rehab Savings Program) is one way you can start building a strong credit history. The amount borrowed is held in a secured account while you may payments towards the total amount. Every payment is reported to the Credit Bureau which results in establishing positive credit. When the loan is paid off, the money is deposited into your account.

Having a good credit score is more important than you think. Lenders will always take into consideration your credit score before approving you for a loan or mortgage and to determine affordable interest rates. While it seems like a hassle, it is necessary to take the time and look for ways to can improve your credit score.

How a Credit Builder Account Helps Boost your Credit Score

A Credit Builder Account helps consumers build their credit history by providing the opportunity to make small monthly payments into a secured savings account. By making scheduled payments, positive monthly reports will be sent to the Credit Bureau, resulting in an increased credit score.

Once the Credit Builder Account is paid off, the initial amount is released to you and deposited into your bank account.

Most Credit Builder Account loan amounts are on the smaller side, ranging from $1,000 – $10,000, which means small monthly payments are manageable. Interest rates can range from as low as 5% all the way up to 17.99%.

The Credit Builder Account terms also vary depending on the lender, ranging from 12 months all the way to 60 months.

For the Credit Builder Account to help boost your credit score, you MUST repay the loan on time. It is with positive payments that the lender will file good reports to the Credit Bureaus which in turn will lead to improvement of your credit score.

How to Find a Credit Builder Account Provider

Credit Builder Accounts are generally offered by smaller financial institutions and online lenders. Be sure to compare different loan providers and choose a Credit Builder Account that you can easily afford. It is important that you commit to repaying the loan on time so that you can register good ratings on your credit score.

Also, try to look for lenders with added benefits. Climb offers free Credit Consulting to anyone. Their goal is to help Canadians build better financial futures and start the process with a Credit Bureau and Budget Assessment. If you are looking for a customized plan to help you get back on track, Climb is the place to go.

Capital One also offers a Secured Credit Card to help boost your Credit Score. Similar to a regular credit card except that approval is guaranteed as you secure the card with some of your own funds. Monthly payments are also reported to the credit bureaus, impacting your credit score.

Pros of Credit Builder Account

You will develop good savings habits, as a Credit Builder Account forces you to save money
Easy to apply for
When you have paid off the loan amount, the money is deposited into your account
As you make monthly payments, you will learn financial discipline
With a higher credit score, you will be more likely to be approved for a loan, mortgage or credit cards and receive better interest rates.

Cons of Credit Builder Account

Late or missed payments will be reported to the Credit Bureau and will negatively affect your score
Credit Builder Accounts are not free, so be sure to ask about fees. They could be referred to as set up, admin or application fees and vary from lender to lender.

The Good Side to Loan Denial

Being turned down for a loan can be emotionally and financially straining.

While it is not easy to always look at the positive side, being turned down for loans can be a good thing. Loan denial tells you that there is a problem with your credit and financial situation. It should be a warning sign that it is time to learn more about your financial situation and understand why you were denied. Understanding how lenders view your credit report is critical and will set you up for success the next time you apply for a loan.

You’ve been Denied. Now What?

1. Understand why you were denied

You can contact the lender, and they will provide you with an explanation as to why you were denied a loan.

Common issues of what went wrong with your loan application:

Poor Credit Score: Your credit score is the number one reason a lender would deny you a loan and is the backbone of your overall credit history.
Errors in your credit report: Review your credit report of any errors. If you can identify an issue, you can dispute it with either of the two credit bureaus in Canada: Equifax and TransUnion.
Limited credit history: If you have little or no credit history, lenders are more likely to deny you a loan. To build your credit score, consider applying for a Credit Building Program/Account or a secured credit card. Both products are highly recommended for people with poor, little or no credit.
Incorrect information on your application: Double check all your information before applying.
Perceived high financial risk: If your expenses are higher than your income, a lender may view this as high risk.
Did you meet basic requirements: Most loan applications come with a minimum age, income level, and other conditions. Make sure you meet the requirements.

Your Credit Score

Five main factors are impacting your credit score:

Payment history
How much credit you have available
Credit history
Types of credit (loans, credit cards, etc.)
Too many inquiries on your credit profile

2. Review your Credit Report

You can see where you stand with your credit score by getting a credit report, which is a summary of your borrowing history. You should review your credit report for accuracy.

Several online sources do this at no cost, as well as TransUnion and Equifax.

You should review your credit score at least once a year to make sure the information is correct. If you are planning an important financial decision over the next few months, be sure to review your report ahead of time and make any necessary steps to ensure your score is optimal.

3. Address your Finances

Once you’ve gone through the process of understanding why you were denied for a loan, review your credit report and have a clear picture of where you stand financially, you can now move on to developing a plan on how to rebuild your credit to help prevent another loan denial.

Focus on improving your financial situation, paying down debt and improving any other issues that are affecting your credit report.

If you are not sure of next steps on how to rebuild your credit, some companies focus on helping Canadians boost their credit score and develop customized plans for you to get you back on track. Climb is an online Credit Building Service with the goal of building better financial futures. They review your credit report, educate you on your credit score (what it means and how to improve) and develop a customized plan to boost your credit score and hopefully, get you approved on your next loan.

Another solution, if you are looking for a quick fix, could be the Capital One secured card. Using this card responsibly will help boost your credit score and result in positive payments on your credit report.

If waiting to rebuild your credit score is not possible because you need money now, you could consider using savings, borrowing from a family member or a friend or asking your employer for an advance and working out a payment plan.

Being turned down for a loan can be discouraging, however, take this opportunity to take a hard look at your credit and financial situation and put a plan in place to improve your credit score. By doing so, you will improve your chances of being approved for a loan in the future.

Lines of Credit versus Personal Loans: Which Should I Choose?

You want to borrow money, but you’re not sure the best way to do it. You know a credit card doesn’t make sense since it will be a large expense that you plan to pay off over an extended period of time. You’re thinking a line of credit or personal loan makes sense, but you don’t know which one is best.

Let’s take a closer look at lines of credit and personal loans and when you might want to choose one over the other.

What’s a Line of Credit and When Might It Make Sense?

Lines of credit are loans that allow you to borrow up to a predetermined limit. A line of credit is quite flexible. You’re able to borrow as much money as you need and pay it back on your own schedule (when you’re approved for an interest-only repayment schedule).

A line of credit is revolving credit. This is just a fancy way of saying that you’re able to borrow against it whenever you want and pay it off on whenever you like without applying for a new loan. Lines of credit don’t have a specific date you’re required to pay them back in full. Instead, you can pay them off on a schedule that works with your finances. (However, the longer you take to pay off your line of credit, the more you’ll pay by way of interest.)

With a line of credit, you can make interest-only payments, making your payments more affordable. Also, you’ll only pay interest on money that you’ve borrowed. (You’re charged interest only on the money you withdraw from your line of credit, not on the credit limit itself.)

Lines of credit can make the most sense for both short- and long-term borrowing needs. For example, if you’re looking to consolidate debt and you may need to borrow more money down the line, a line of credit makes a lot of sense. You’ll be able to borrow more money later on without applying for a new loan.

Likewise, if you’re planning to borrow money for a major expense, such as a costly home renovation, or you’re planning to borrow money on an ongoing basis (i.e. for a serious of home renovations), then those are other instances when lines of credit can make sense.

What’s a Personal Loan and When Might It Make Sense?

A personal loan is a loan in a fixed amount that you agree to pay back over a specific time period by way of instalments. Loans usually need to be paid back over six to 60 months.

Loans are less flexible than lines of credit. If you need to borrow additional funds or you’d like to extend the repayment period, you may need to apply for a new loan.

The monthly payments on loans tend to be higher. Unlike lines of credit where you can make interest-only payments, the payments on loans must consist of interest and principal. Also, unlike a line of credit, you’re charged interest on the total loan amount the moment you take out a loan, regardless of when you use the money.

Loans make the most sense for specific needs, like paying for a vehicle or a one-time home renovation. If you don’t plan to borrow any more money, a loan can make a lot of sense.

A loan is also handy for those who lack financial discipline and prefer a fixed payment schedule. With a line of credit, it can be tempting to make interest-only payments, but by doing that, you’re no further ahead. With a loan, you’re required to make interest and principal payments. Because of that, your minimum monthly payment is higher, helping you pay off the loan sooner and save on interest.

Are you still not sure whether a line of credit or personal loan makes the most sense for you? Contact our offices today. Our credit consultants are happy to help.

Climb’s Personalized Credit Prescription provides you with customized recommendations to help rebuild your credit score.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.

How to Choose the Right Secured Credit Card

Without a credit card, life can be a whole lot tougher. Whether it’s making an online purchase, renting a car, or securing a reservation, many everyday transactions seem to require a credit card, even if you have the cash in hand.

If you’re in a consumer proposal or have a poor credit rating and fear being turned down for a credit card, don’t panic. A secured credit card may offer you the flexibility you need and a chance to get your credit score back on track.

Want to get an expert opinion on which secured card is best for your situation? Contact us for a free credit consultation and our expert consultants will recommend the secured Visa card or secured Mastercard you’re most likely to qualify for. Note: this post contains affiliate links marked with a *. Climb may receive a commission for signups made through these links.

What is a secured credit card?

A secured credit card is a type of credit card that allows you to access the benefits of a credit card, even if you’re in a consumer proposal or you have a low credit score.

A secured credit card, like it’s name suggests, requires a security deposit. This is usually around 1-2 times the limit you’re applying for. For example, if you’re applying for a $500 limit, you’ll give the lender $500-1000 as a deposit.

That means the lender takes on less risk: if you fail to pay back what you owe, they’ll use your deposit to clear that debt.

The real long-term value of a secured credit card lies in its ability to help rehabilitate your credit score. Unlike a prepaid credit card, your lender will report your payments to credit agencies, meaning using a secured credit card will build a positive payment history, which can help you improve your credit score. Having a “revolving” form of credit on your credit report is one of the best ways to rebuild your credit, especially if it’s paired with an “installment” form of credit like a Climb Accelerator Plan. Learn more about the different types of credit here, or talk to one of our credit consultants about your own credit rebuilding goals.

Factors to consider when comparing secured credit cards

As with any financial product, it’s important to understand what you’re signing up for when you take on a secured credit card. Here are some questions you’ll want to ask.

1. What are the fees?

It’s relatively easy to find out whether the card you’re applying for has annual fees or not.

But look out for other hidden fees, such as fees for foreign transactions, cash advances, declined transactions or going over your limit. One popular card advertises a low annual rate but then tacks on a monthly fee. You should ask to see a full fees schedule before you commit to a card and make sure the fees will be manageable for you.

2. What’s the interest rate?

Secured credit cards typically have higher interest rates than a standard unsecured card. However, if you intend to avoid carrying a balance on your card this may not pose too large a problem. We recommend treating your secured credit card like a debit card and paying it off in full every month.

3. How much is the deposit and what happens to it?

Most cards will have minimum and maximum deposit requirements. Make sure you can afford the minimum deposit and that you understand how the deposit relates to the amount of credit that will be available to you.

While you use your secured credit card, you won’t have access to the funds you’ve deposited and the deposit can’t be applied to your monthly payments. However, if you’ve paid your bills on time and in full, your deposit will be refunded to you when you close your account.

Which is the right secured credit card for me?

Making the right choice of secured credit card will depend on your financial situation. Here are some of the options available to Canadian borrowers with a comparison of their different features and benefits.

Home Trust Secured Visa

Fees	No Annual Fee Other fees include: Overlimit fee: $29.00 Dishonoured cheque fee: $45.00 Inactive account fee: The lesser of $10.00 or the full account balance if the account has been inactive for 360 days Foreign currency conversion fees: 2% ATM Charges: $2.50 for up to $250 cash advance within Canada—fees are higher internationally
Interest Rate	19.99%
Minimum Deposit	$500
Monthly Minimum Payment	3.00% or $10 (whichever is larger).

Home Trust Secured Visa offers a great no annual fee option. The minimum deposit starts at $500 and maxes out at $10,000. The amount of credit available to you scales directly with the amount of your security deposit: so if you put $500 down, you receive $500 worth of credit.

While Home Trust does require a credit check as part of their application process, the card has a high approval rating, and a low credit score is not usually associated with rejection. The catch is that you need to send a physical cheque to their office with your security deposit, which can be inconvenient.

The card offers the worldwide flexibility of the Visa brand, as well as an interest-free grace period of 21-days. You can apply directly here.*

Home Trust Secured Visa (Annual Fee Option)

Fees	$59.00 annual fee (or $5 per month) Other fees include: • Additional authorized user fee: $19 annual fee (or $2 a month) • Overlimit fee: $29.00 • Dishonoured cheque fee: $45.00 • Inactive account fee: The lesser of $10.00 or the full account balance if the account has been inactive for 360 days • Foreign currency conversion fees: 2% • ATM Charges: $2.50 for up to $250 cash advance within Canada-fees are higher internationally
Interest Rate	14.90%
Minimum Deposit	$500
Monthly Minimum Payment	3.00% or $10 (whichever is larger).

Almost identical to their no-fee option, the annual fee Home Trust Secured Visa has the benefit of one of the lowest interest rates available with a secured credit card. If you think you may carry your balances forward, this may be a better fit for you, so long as the fee is manageable. You can apply for the HomeTrust Secured Visa Card here.*

Refresh Financial Secured Visa

Fees	$12.95 annual fee $3 per month maintenance fee Other fees include: • Declined transaction: $0.10 • ATM Charges: $5 cash advance fee in Canada • Overlimit fee: $5 for first time—additional times will result in the cancellation of your card • Foreign Transaction Fees: 3.5% • Inactive fee: $2 per month for each month you don’t use your card
Interest Rate	17.99%
Minimum Deposit	$200
Monthly Minimum Payment	Information not publicly available

Refresh Financial’s Secured Visa offers a secured credit card with a minimum deposit of just $200. It allows deposits up to a maximum of $10,000 and provides a comparable interest rate to other secured cards. This card offers a 21-day interest-free grace period on your transactions.

This card requires no credit check and so your application is virtually guaranteed to be approved provided you meet the eligibility criteria and can provide the deposit.

Capital One Guaranteed Secured Mastercard

Fees	$59 annual fee Additional fees may apply
Interest Rate	19.8%
Minimum Deposit	$75-$300
Monthly Minimum Payment	Information not publicly available

Capital One’s Guaranteed Secured Mastercard promises that as long as you meet their conditions, you’ll be approved for a card. Capital One will set your credit limit and then require a deposit of either $75 or $300 based on that limit. You can increase your limit up to $2,500 by increasing the size of your deposit.

With your Capital One Card you also receive Mastercard Global Services and Zero Liability protection for unauthorized purchases. Capital One also allows you to add an additional authorized user with no fees.

Still have questions?

Grappling with secured credit cards when you’re in a consumer proposal can be a headache. If you have more questions about your credit score, its impact on your ability to get credit, and the options you have available to you, book a free credit consultation with one of our experts. We’ll help you explore your options and get your credit score back where it belongs.

Author: Climb

Ultimate Glossary of Consumer Proposal Terms

Are you struggling with debt and considering a consumer proposal? Have you recently entered into one? Here’s an A-Z glossary of important terms related to debt and consumer proposals to help inform and empower your decisions.

Complete List of Consumer Proposal Terms

Bankruptcy – When a person is unable to pay their debts, they may choose to file for bankruptcy. Bankruptcy is a formal process where you work with a Licensed Insolvency Trustee (LIT) and sign over all your assets (except those exempt by law) towards debt repayment. When you declare bankruptcy, payments to creditors are stopped, as are any legal actions like wages being garnished. Your first bankruptcy appears on your credit report for six years after your date of discharge and is listed as an R9 rating.

Bankruptcy and Insolvency Act – The Bankruptcy and Insolvency Act (BIA) is the Canadian act that outlines how bankruptcies and insolvencies work in Canada. It also details the roles and requirements of the Superintendent of Bankruptcy, the court, trustees, creditors, consumers and more.

Certificate of Full Performance – When you pay off your consumer proposal amount in full, your Licensed Insolvency Trustee (LIT) will complete a Certificate of Full Performance to make it official. Make sure that your Certificate of Full Performance is shared with the credit bureaus immediately since this will trigger your old debts to be marked as settled and begin the 3-year countdown until the consumer proposal is removed from your credit report entirely.

Consumer Proposal – A consumer proposal is a debt relief program authorized by the government of Canada, which is available to individuals as an alternative to bankruptcy. If you file for a consumer proposal and it’s accepted by your creditors, you’ll pay back a percentage of debts to creditors, distributed over monthly, interest-free payments usually spread over a period of five years. A consumer proposal appears on your credit report for three years after your last payment and is listed as an R7. A consumer proposal must be administered by a Licensed Insolvency Trustee (LIT).

Credit Bureau – This term can be used two ways. A “Credit Bureau” is another term for a credit reporting agency (TransUnion or Equifax). Financial industry professionals such as trustees and credit counsellors also often refer to a person’s credit report as their “bureau”.

Credit Counseling – The goal of credit counselling is to help you improve your financial situation by providing advice on various topics like how to budget your money, improve your credit score and create a plan to assist with debt repayment. There are different types of accreditation from province to province, but it’s important to check that the credit counselling agency you work with is trustworthy and their counsellors are qualified.

Credit Counselor – A Credit Counsellor is someone who provides credit counselling. There are many individuals or agencies who might advertise this service without the right education and credentials so before you commit to working with a counsellor, check to see if they’re accredited in your province.

Credit Report – A credit report (also called a “credit bureau” by some industry professionals) is a document meant to show a complete overview of your financial history. It’s important to check your credit report regularly for errors as reporting mistakes do happen. Your credit report is one of the items used by institutions when determining your eligibility for getting approved for credit.

Credit Score – A credit score is a three-digit number assigned to you by the credit bureaus, which include Equifax and TransUnion. Credit bureaus use a mathematical formula to determine your score, taking into account all aspects of your credit report. Just like your grades in school, the higher your credit score, the better it is. A higher score increases your chances of getting approved for a loan and securing a lower interest rate – but you may see a different credit score number depending where you check.

Debt Consolidation – Debt consolidation is the act of combining multiple smaller debts together into one loan. By consolidating all of your small loans, bills and other debts into one, it allows you to focus on one monthly payment rather than managing multiple payments each month.

Equifax – One of the two major credit bureaus in Canada. If you want to request a copy of your Equifax credit report or report an error to Equifax, contact them here.

Insolvency – Insolvency occurs when an individual isn’t financially able to pay their debts on time. Consumer proposals, debt consolidation and filing for bankruptcy are all options for individuals should they become insolvent.

Installment Credit – Installment credit is a type of loan that is extended for a predetermined amount of time, which is often referred to as the term of the loan. This type of loan usually has an amortization schedule to direct the borrower to pay off the principle through fixed installment payments over several years. Mortgages, car loans and student loans are popular examples of installment credit.

Licensed Insolvency Trustee – A Licensed Insolvency Trustee (LIT) is a are federally regulated professional that individuals and businesses can turn to for advice and services when they’re facing debt problems. The goal of an LIT is to help clients make informed financial choices.

Office of the Superintendent of Bankruptcy – The Government of Canada’s Office of the Superintendent of Bankruptcy (OSB) is responsible for the administration of the Bankruptcy and Insolvency Act (BIA) and duties under the Companies’ Creditors Arrangement Act (CCAA). The OSB licenses and regulates the insolvency profession, maintains public records and statistics and more.

Revolving Credit – Revolving credit is a type of credit that replenishes (up to a limit) each time the customer pays off their debt. Credit cards are an example of revolving credit.

Secured Credit Card or Secured VISA – A secured credit card or secured VISA is a type of credit card that is backed or “secured” by a cash deposit from the borrower. This provides the lender with security if the borrower can’t make their payment. A secure credit card is usually issued to individuals with limited or poor credit history.

Secured Debt – Secured debts is a type of debt where the borrower provides collateral for the loan. This could be a cash deposit, a car (for a car loan) or a house (for a mortgage). If the borrower defaults on the loan, meaning they’re unable to repay the debt, the lender can use the collateral to repay the funds.

TransUnion – Alongside Equifax, TransUnion is the other major credit bureau in Canada. If you want to request a copy of your TransUnion credit report or report an error to TransUnion, contact them here.

Unsecured Debt – Unsecured debt is debt that doesn’t involve any form of collateral support, such as a cash deposit from the borrower or a car or house (in the case of a car loan or mortgage). In the event that a borrower defaults on the payments, the lender must seek legal action (such as having a collections agency sue the borrower to garnish wages, file a lien on property, etc.) to be able to collect the balance owed.

Author: Climb

So, You’re in Consumer Proposal – Now What?

Imagine this:

John is a 44-year-old father of three children, and he works in the technical sales industry in Toronto. His annual salary is $63,000, which – combined with his wife’s salary of $45,000 – provided them just enough to cover mortgage payments on their small Toronto home. After his father passed away, a series of challenges left John feeling like his life was falling apart: he faced additional financial stresses from funeral expenses, one of his children was getting in trouble at school and the hardships were putting strain on his already distressed marriage.

Things didn’t get easier once a divorce became imminent. There were lengthy court proceedings and high legal fees. John’s financial stresses became perilous and he had no idea how he was going to afford the required child support payments, let alone pay off his debts. John feared that he would have no choice but to declare bankruptcy, which would involve losing his home.

A bit of good news came his way when John learned about consumer proposals. This would enable him to retain his assets and clear his debts within a five-year period. He connected with a Licensed Insolvency Trustee (LIT) who negotiated manageable payments with his creditors. He no longer faced collections agencies and climbing interest rates on his debts. It was a situation John had never envisioned he’d be in, but he accepted it as his best option.

This situation isn’t an uncommon one. Financial hardships and debt loads can land on any of us – even individuals who enjoyed a high income or financial comfort. And, it’s ok. Although it can feel devastating, it is possible to bounce back.

Here are 3 attainable and affordable ways to regain financial stability during a consumer proposal:

1. Seek Financial Guidance

Personal finances are complicated and require careful attention and knowledge to manage properly. This is even more so the case for those experiencing financial loss and hardship, including those in consumer proposal.

Most people are not equipped to manage complex personal finances, let alone maximize their financial opportunities. When in financial distress or consumer proposal, there is little room for error or financial mismanagement. Fortunately, there are professionals skilled at identifying strategies to help you optimize your financial health and plan for a secure financial future.

It’s very important to seek advice from a reputable source that’s not charging a hefty service fee or trying to sell you a product. This could be costly for you and cause you to buy into a financial option that may not be right for you.

The main takeaway here is that you don’t need to tackle your financial hardships alone and some quality guidance can give you the confidence and ability to improve your short- and long-term financial situation.

2. Understand Your Credit Score

Unfortunately, during consumer proposal, your credit rating takes a hard hit. The debts on your credit report are marked “9”, the same rating as those in bankruptcy while you’re in consumer proposal. The debts are updated to a “7”, indicating the debt has been settled, after you’ve completed your proposal. If you’re not too familiar with what makes up a credit score, check out this summary.

It’s also a good idea to regularly monitor your credit score. This enables you to identify increases and decreases in your score and spot any errors that can sometimes find their way into your report. You can request a free copy of your credit report once a year from Equifax and TransUnion, Canada’s two credit bureaus. Additionally, Canadian companies such as Mogo, Credit Karma, and Borrowell can send you free monthly updates on your credit score and rating.

3. Consider a Credit Accelerator Program

An excellent way to improve your credit score during consumer proposal is through the Climb Accelerator Plan, a program specifically aimed at helping you boost your credit score while in consumer proposal. It has the added benefit of helping you build savings for a rainy-day fund or to pay off your consumer proposal sooner, so that you can move on with your life.

Here’s how it works: Climb works with you to develop an early repayment goal customized to your budget, payment schedule and financial goals. You make pre-authorized weekly, biweekly or monthly payments that Climb reports to Equifax and TransUnion. In the meantime, your money is stored in a secure account and then returned to you as a lump sum at the end of your term.

The program is a great and affordable way to improve your credit and financial situation while in consumer proposal. There’s no upfront fee and you can customize the amount you’re saving based on your budget, with plans as low as $7/week. Learn more about it here.

Conclusion

As you can see, the consumer proposal is not the end of the line for you. There are steps you can take right away to improve your financial situation by rebuilding your credit score, undertaking careful financial planning and exploring your options to accelerate your progress.

Have any questions about the tips above? Contact us today and we’ll help you navigate your way to a brighter financial future.

Author: Climb

Things To Know About Consumer Proposals in 2020

Even before the coronavirus pandemic hit, there were mounting concerns about personal debt levels in Canada. While borrowing money can be part of good financial management, debt becomes a problem when it starts piling up and outpacing income.

So, what does the debt situation look like in Canada? The Canadian household debt load has been steadily rising since the early 1990s. Debt levels have spiked more recently, due largely to lower interest rates. This has been especially reflected in high levels of mortgage borrowing. What’s important to note, though, is the ratio of borrowing to household income. A recent report showed that household debt is at $1.76 for $1 of disposable income. Furthermore, Canadians are spending a record 14.96% of their income on debt payments, half of which is being directed towards interest.

Insolvencies are also on the rise among Canadians, particularly among individuals. According to Statistics Canada, consumer insolvencies increased by 13.4% in the past calendar year. It may come as a surprise, then, that the number of bankruptcies have actually decreased by 1.2% during this same period. This downward trend in bankruptcies started in 2009 and can mostly be attributed to more favourable global economic conditions.

But there’s another reason why bankruptcies have been continuing to decline: consumer proposals. More and more Canadians are pursuing consumer proposals over bankruptcy to deal with insurmountable debt. In fact, consumer proposals increased by 17.9% in the past calendar year, coming to a total of 83,703.

Why are More Canadians Choosing Consumer Proposals?

Both consumer proposals and bankruptcy result from insolvency, yet consumer proposals enable individuals to keep their assets, more quickly pay off debt and do less harm to their credit score. This is often appealing to those with higher incomes and with valuable assets. The bankruptcy route can result in surplus income payments and loss of assets.

A consumer proposal is a debt relief program authorized by the government of Canada available to individuals looking to avoid bankruptcy. A Licensed Insolvency Trustee (LIT) works on an individual’s behalf to negotiate with the individual’s creditors a percentage of debts to be paid. This amount is distributed over monthly payments usually spread over a period of five years. You can see why this may be an attractive option for many overburdened by debt.

Situations of insolvency, however, still cost enormous amounts of stress, time and damage to your credit rating. In a climate of alarming debt rates and worrisome debt-to-income ratios – and significant societal consumer pressures – how does one avoid hitting the red?

How to Avoid the Downward Debt Spiral

It’s important to approach financial trends, including the spending and borrowing happening around you, with a healthy amount of caution.

For example, low interest rates may make a mortgage suddenly possible, but does that mean it makes sense for you to buy that house? Make sure to be aware of what percentage of your household income will go towards mortgage payments and interest and how long you will be paying your mortgage. And continually analyze your spending habits. Are you spending an appropriate percentage of your income on rent or mortgage payments, loans payments and personal expenses? Is there enough left over for your slush fund and your retirement savings?

Even if you don’t think you’re in a financially precarious place, it’s a really good idea to seek some solid financial planning advice. Maybe you’re doing ok, but some ongoing habits – or an unexpected major event, like we’re currently seeing with COVID-19 – could put you in a tough spot.

If You Find Yourself in Consumer Proposal…

As we explored above, insolvency and consumer proposals happen to many Canadians. And, they can happen to anyone – even those with high incomes and those who are careful with their money. Major events can happen that cause a cascade of financial duress, and eventually, unmanageable debt.

If this is you, there is good reason to foresee a better financial future. You can take action to boost your credit, save for the future and improve your financial situation right away. Doing so will maximize your short- and long-term financial health and help you move on with your life.

Make Credit Climbing Your Goal

Your credit score is like your financial report card and affords you the opportunity to qualify for loans, credit cards, a house rental and sometimes even a job. The credit scores among those in consumer proposal, unfortunately, drop very low. Nevertheless, it’s especially important to make improving your credit score a top priority during consumer proposal. By building a positive payment history during your consumer proposal, you’ll be poised to maximize your credit score when you complete your proposal.

It’s important for everyone, and particularly those in proposal mode, to keep on top of their bill payments, including to your proposal. Ensure, as well, that you avoid making out cheques with insufficient funds. It’s also a good practice to monitor your credit score and rating on an ongoing basis. This way, you can detect upward and downward movements in your score, as well as identify any possible errors. You can obtain a free copy of your credit report once a year from Equifax and TransUnion, Canada’s two credit bureaus. Canadian companies such as Mogo, Credit Karma, and Borrowell can also send you free monthly updates on your credit score and rating.

Consider a Credit Accelerator Program

If you’re eager to pay off your consumer proposal in less than five years and are interested in improving your credit and building your savings, consider the Climb Accelerator Plan.

The plan is geared towards helping those in consumer proposal boost their credit rating, while building up some savings that can be used to pay off your proposal sooner. Climb works with you to develop an early repayment goal customized to your budget, payment schedule and financial goals. You make pre-authorized weekly, biweekly or monthly payments that Climb reports to Equifax and TransUnion. In the meantime, your money is stored in a secure account and then returned to you as a lump sum at the end of your term.

Conclusion

With consumer proposals steadily on the rise in Canada, and more on the horizon thanks to the devastating financial impacts of the coronavirus pandemic, it’s important to be prepared and know your options. A consumer proposal is a serious situation, but it’s one you can recover from with the right actions.

Still have questions? Reach out today and our team would be happy to provide you with a free credit consultation.

Author: Climb

What’s a Consumer Proposal and How is it Different from Bankruptcy?

You may have heard the term consumer proposal. But do you understand what it truly means? And do you know how it’s different from a bankruptcy?

Both consumer proposals and bankruptcies help you get rid of debt and assist from a monthly cash flow perspective. However, the way they achieve these outcomes is very different.

In this blog post, we’ll take a look at exactly what a consumer proposal is, how a consumer proposal works and why you might benefit from filing for a consumer proposal over a bankruptcy.

What’s a Consumer Proposal and How Does it Work?

A consumer proposal is a formal arrangement that’s negotiated with the creditors to whom you owe money. This legally binding agreement is negotiated and administered by a Licensed Insolvency Trustee (LIT). A consumer proposal is another way to handle debt besides filing for bankruptcy. It protects you from creditors who are seeking immediate debt collection, sometimes via legal action.

When filing a consumer proposal, you should work with an experienced LIT you can trust. Together, the LIT will work closely with you to come up with a proposal your creditors are likely to accept. At its core, the consumer proposal can:

Pay your creditors a percentage of what’s owed to them;
Lengthen your payment schedule (to a maximum of 5 years); or
A combination of both.

When filing a consumer proposal, instead of paying creditors directly, you’ll make the payments through the LIT you’re working with. The LIT will then pay the creditors based on the agreed upon repayment schedule and amount in the consumer proposal.

Creditors will usually accept a consumer proposal if they believe they’re likely to receive more money than they would under a bankruptcy.

What are the Benefits of Filing a Consumer Proposal?

Are you considering filing for a consumer proposal or bankruptcy, but you’re not sure which one to go with? Here three key benefits of filing a consumer proposal over bankruptcy:

1. Avoiding Bankruptcy.

A major benefit of filing a consumer proposal is that you’re not filing for bankruptcy. A consumer proposal offers you short term debt relief, plus a better opportunity to rebuild your credit score over the long term.

For instance, the debts included in your consumer proposal filing will be marked as “R7” or “I7” on your credit report. An R7 or I7 means that you have compromised or settled your debts and it remains on your credit bureau report for 3 years after your proposal is paid in full. Bankruptcies, on the other hand, result in your debts being marked as an “R9” or “I9”, which is the worst possible status on a credit report. An R9 or I9 represents a bad debt write off, meaning you defaulted on your debt. And an R9 or I9 will remain on your credit report for 7 years from the last date of any activity or payment on your outstanding debt.

2. Better Cash Flow.

Since the amount of time you have to repay your debts may be extended – or the amount of money you’re required to repay may be reduced – your cash flow will almost always improve. Interest also stops accruing when you’re in consumer proposal, helping you save on the total amount of interest you’ll pay.

3. Keep Your Assets.

One of the biggest concerns many people have when they file for bankruptcy is that they’ll lose the assets they’ve worked so hard to acquire. Unlike a bankruptcy, where you may have to turn over the keys to your home and car, a consumer proposal typically protects those assets from being seized by creditors.

What Happens Once You’re in a Consumer Proposal?

There are several things that will happen when you enter into a consumer proposal.

First, your LIT will file your proposal with the Office of the Superintendent of Bankruptcy (OSB). Once your proposal is filed, you stop making any further payments to your creditors. Any collection or legal actions initiated by your creditors (including collection calls, wage garnishes or court actions) will cease immediately.

Next, your LIT will submit the proposal on your behalf directly to your creditors. The proposal will include a detailed report about your personal situation, as well as the source of your financial difficulties. Your creditors will then have 45 days to either accept or reject the proposal. If they accept it, you will begin making payments according to the terms you have agreed to.

Can You Get Out of a Consumer Proposal Early?

Luckily, if you have the ability to, you can make additional payments towards your consumer proposal to pay it off earlier.

At Climb, we’ve designed a custom program, called the Climb Accelerator Plan, that provides the option for clients in consumer proposal pay if off earlier, while also building their credit score.

If you’ve recently filed a consumer proposal, our plan may be right for you. Learn more about the Climb Accelerator Plan today.

Updated: March 27, 2020
Originally Published: February 12, 2019

How to Prepare for your Next Mortgage

With the spring home buying season fast approaching, anyone committed to buying a home in 2020 needs to start preparing. That can be a pretty daunting task, especially if you’ve never taken out a mortgage before. With all the rules, steps and considerations, buying your first home is like taking a crash course in the real estate industry.

But when you break it down, applying for a mortgage isn’t as complicated as it might first appear. Follow these four steps to prepare your finances and the rest will fall into line.

Evaluate your Credit

Having a good credit score is one of the best ways to qualify for a mortgage with favorable terms. Without solid credit, a bank may charge higher interest rates or deny your application outright.

Check your credit report or your credit score through a free service to see where you stand.

Make sure there are no errors on your report that could disqualify you for a mortgage.

See if there are any red flags from your past that may be disputable. Negative marks generally stay on your credit report between six and seven years, so call the credit bureau if you see any older than that.

Save for a Down Payment

If you haven’t started, now is the time to create a savings plan for your down payment. A down payment acts as proof of trustworthiness to the lender, so it’s a great way to establish yourself as a qualified borrower. You need to put down at least 5% for a mortgage, but a 20% down payment will save you from paying private default insurance.

How much you want to contribute depends on your budget and how soon you want to buy. If you want to purchase a home next year, you might not have time to save the full 20%.

Remember to also save money for closing costs, moving expenses and new furniture. Buying a home for the first time can come with a lot of surprise expenses, so it never hurts to save more than you’ll probably need.

Pay Down Debt

Lenders determine how big of a mortgage to offer based on your income and current debt load. The more you owe, the less you’ll qualify for.

Before buying a home, see if you can pay off high-interest debt or refinance to a lower monthly payment. Reducing your total debt burden will free up your finances and make it easier to qualify for the mortgage you want.

Look at your Budget

Borrowers often use their current rent payment to determine the size of the mortgage they want, but owning a home is far more expensive than renting. On top of the mortgage payment, you have to pay for repairs, maintenance and property taxes. When the water heater breaks, there’s no landlord to step in and handle the repairs.

Assess your budget and see how much wiggle room you have for the unexpected costs. If your monthly spending is already tight, consider getting a house with a monthly payment less than your rent. You can use the remainder to save for future repairs and other home costs.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.