Can I pay off my Consumer Proposal early?

The short answer is yes. But first, ask yourself if you should.

There are benefits to paying off your Consumer Proposal early. But do they exceed the potential pitfalls?

Let’s take a look.

The benefits of paying off your proposal

Undoubtably, there are benefits to paying off your Consumer Proposal early.

The first, and perhaps the biggest benefit, is that by paying off your proposal before the scheduled completion date, you get a head start on rebuilding your credit.

Also, this fresh start may look more favourable to your mortgage provider or landlord if it comes time to renew your mortgage or lease.

Psychologically, there’s a significant benefit to paying off your Consumer Proposal early — your mind may feel clearer without those payments and debts looming over you.

But paying off your proposal early does come with risk. The proposal payment terms are designed to fit within your budget. There should be room to save for your future, as well as afford payments. Don’t overextend your finances just to pay off the proposal early.

Before you pay it off, consider the following factors: 

Are you going to use your emergency savings?

An emergency fund is money you’ve set aside for unexpected events like loss of employment, or major home or vehicle repairs. Using these savings to pay off your proposal is not recommended. It’s best to keep those funds safely tucked away for emergencies.

What are your financial goals?

Setting financial goals around future vacations, retirement savings, major purchases, education, and lifestyle improvements is an important step toward financial success. Without outlining your financial goals, you may struggle to budget your needs and wants. 

Paying your proposal early, for instance, may be one of your financial goals.

Have you implemented a budget and stuck to it for at least three months? 

Having a balanced and realistic budget is a key strategy for long-term financial success. Without this, you risk overspending and could potentially find yourself in debt again.

Before paying out your proposal, ensure you have been sticking to your budget and revising it as needed. If you are consistently over budget on your expenses, you’re not ready to pay off your proposal.

Do you need credit right now? 

Paying off your proposal early may help you rebuild your credit faster, but it could also put you in a position to be using credit before you are ready.

If you need credit during your proposal period, consider secured or pre-paid credit products. These products use your own savings to grant you access to credit.

How do you plan to pay off your proposal?

Do you have cash saved or are you thinking of borrowing money?

If you borrow to pay off your proposal, you risk high interest rates and repaying debt for as long as you would have in the proposal. Instead, put your savings to work for you and earn interest.

How do you pay off your Consumer Proposal early?

You’ve considered the criteria and want to pay off your Consumer Proposal early. You can make this happen by increasing the amount, or the frequency, of your monthly payments. 

Perhaps you get a raise in salary and decide to increase your monthly payments. You may have saved funds to make a lump sum payment. You can use savings or tax refunds. Maybe you sold something and want to put the proceeds towards your proposal payments.

For instance, take a proposal agreement to pay $18,000 at a rate of $300 per month over 60 months. You’ve received a small pay raise at work and want to put some more money toward paying down your proposal. By increasing your payments to $370 each month, you will pay your proposal out in 48 months. That’s a whole year earlier than planned.

By paying $150 biweekly, instead of $300 monthly, you will pay off your proposal 10 months earlier than planned.

By paying an extra $1,000 a year in a lump sum payment, you could pay your proposal out in less than four years. You can make lump sum payments on a Consumer Proposal at any time.

It’s important to note that paying off your proposal early does not result in a penalty. It also won’t accelerate the terms of your proposal. 

Always keep an eye on the long game

In summary, it’s important to understand the nuances of paying off your Consumer Proposal. There are many ways to pay your proposal out early. And the sooner you pay it off, the sooner you can start to rebuild your credit.

Contact us for a free, confidential consultation to discuss your unique needs and learn how you can plan to pay off your Consumer Proposal today.