How Long Does a Consumer Proposal Stay on a Credit Report?

Dealing with debt can be overwhelming, but a consumer proposal offers a practical way to manage it without having to declare bankruptcy. But, if you choose this route, you might be asking, “How long does a consumer proposal stay on my credit report?”

In short, a consumer proposal typically stays on your credit report for three years after you have made your final payment or six years from the date you filed, whichever comes first.

If you think this might be the right solution for you, let’s break down what a consumer proposal is, how it affects your credit, and the steps you can take to rebuild your credit once it is no longer on your report.

What is a Consumer Proposal and Its Impact on Your Credit

So, what exactly is a consumer proposal? A consumer proposal is essentially a deal you make with your creditors, and it is handled by a Licensed Insolvency Trustee. It is a formal and legally binding debt settlement agreement that combines all your debts into one easy-to-manage payment, while also cutting down the total amount you will owe. This can be up to 80% and the rest of your debt Is forgiven!

A consumer proposal can cover almost all unsecured debt, including:

• Credit card debt
• Unsecured lines of credit
• Bank overdraft fees
• Tax debt
• Student loan debt
• Payday loans
• Personal debts to individuals, such as money owed to friends or family

Unsecured debt means there is no collateral tied to the loan, unlike secured debts such as mortgages or car loans.

The Upside of a Consumer Proposal

• Cut Down Your Debt: One of the biggest perks is that it reduces the total amount you owe. Creditors agree to take a bit less than the full amount because they know they will get something, which is better than nothing.
• Avoid Bankruptcy: A consumer proposal is an alternative to declaring bankruptcy.
• No More Interest in Most Cases: As soon as you file a consumer proposal, interest stops piling up on your debt in most cases. This makes it a lot easier to manage your payments.
• No Wage Garnishment: Once your proposal is accepted, the amount you pay back is fixed even if you get extra income.

The other great things with a consumer proposal are that your assets are protected and you will not have to worry about communicating with your creditors once the proposal is filed. This means that your unsecured creditors will not be able to keep calling you or try to take action against you.

How Long Does a Consumer Proposal Stay on a Credit Report?

According to Equifax, a consumer proposal will stay on your credit report for three years after you have made your final payment or six years from the date you filed, whichever one comes first.

How to Improve Your Credit After a Consumer Proposal

Having a consumer proposal will initially harm your credit rating. This rating helps future debtors, such as banks or credit card companies, determine your ability to repay them. Of course, there are other factors that come into play such as payment history or how long you have been employed.

However, filing a consumer proposal does not damage your credit forever. Addressing your debt through a consumer proposal benefits you in the long run, though it takes time. A consumer proposal helps you rebuild your financial life. By ending the minimum-payment cycle, you can responsibly acquire new credit.

Here is how you can improve your credit upon successfully completing your consumer proposal:

Make Timely Payments

First off, make sure you are paying all your bills on time. This includes any leftover debts and any new credit obligations. Paying on time shows lenders that you are responsible and can handle your finances well. Plus, it helps you avoid falling back into serious debt.

We recommend having a calendar and making note of when your bills are due. That way you have full visibility into when money is expected to come out of your account or charged to your credit card, and you can ensure that there is enough readily available. This can also help reduce additional fees on missed or bounced payments.

Keep Your Credit Usage Low

Credit utilization is how much credit you are using compared to your total credit limit. It is best to keep this number under 30%, so do not max out your credit cards. For example, if you have a $1,000 limit, aim to keep your balance below $300.

On the same note, try to exercise the same practice with your debt-to-income ratio. This percentage can help you understand your monthly debt payments compared to your monthly income. This not only boosts your credit but also helps you manage your finances better and avoid overspending. It is also a valuable tool for both lenders and individuals to assess your financial health.

Build Up a Positive Credit History

To rebuild your credit, you can consider getting a secured credit card. It works like a regular credit card, but you put down a deposit that becomes your credit limit. You can use it for small purchases and pay off the balance in full every month to show you are managing your credit responsibly. This steady, positive activity on your credit report can go a long way in improving your rating.

Stay Mindful of Your Spending

After a consumer proposal, it is important to stay on top of your spending habits to avoid falling back into debt. While it is easy to spend a few bucks here and there, those small purchases can quickly add up and add to your debt.

Create a budget and stick to it, track your expenses, and prioritize saving. By being proactive and disciplined, you can take control of your finances and keep your credit rating on the rise. It also becomes a helpful picture to see all your income and expenses in one spot, so you can find different areas to cut costs. For example, maybe you will realize that you are still paying for a subscription that you do not use enough.

It is important to create a budget that you can stick to but can be also flexible enough if you need to adjust in case anything comes up. And if you do go over budget, it is ok! Try not to be too hard on yourself because it will take time for you to get used to any new routine. You can figure out what happened and adjust your spending for the following week or month.

Avoid Borrowing More Money

While debt consolidation loans seem like a good idea, it’s important to weigh up all your options to see the true cost of that loan. They’re not for everyone and can be hard to qualify for if your credit has already been damaged. They also usually involve higher interest rates and can lead to greater financial strain in the long run.

If you are working to get out of debt, you should try to stay out of it by avoiding borrowing more money. This also includes signing on new loans for a car or maybe a payday loan to pay off another loan you may have. You have debt-relief options and taking on more debt does not have to be your only solution.

Get Debt Counselling

If you are feeling lost, you can learn to budget and better manage your money with debt counselling. There is no “quick fix” to improving your credit rating as it is a process that will wake time. Working with a professional can help you come up with a plan to rebuild your relationship with money and improve your credit rating over time.

That being said, be sure to stay clear of any services that promote fast credit fixes or promises that seem too good to be true. There are a lot of companies out there that will prey on those in debt and in need of help, then overpromise on things they cannot deliver.

When you work with a debt expert at Farber, they will work with you to ensure you build a better relationship with money by helping you create a plan. They will be right by your side ensuring the process is as simple as possible to help you make informed decisions and provide you with personalized financial guidance to rebuild your financial future.

How Farber Can Help Manage Your Debt

If you are considering a consumer proposal, remember it can be a powerful tool to manage your debt. At Farber, we can help you cut up to 80% of your debt, making it more manageable to pay off and setting you on a path to financial recovery.

We will also work with you to build a plan personalized to your unique financial situation to help you gain the confidence that comes with leaving your debt behind.

We know that dealing with debt can be tough, but we are here to help you through the process of a consumer proposal and beyond. Contact us to book your free consultation!