Overwhelming debts start small. When a farmer thinks about harvesting thousands of mango fruits, his action plan starts with a mango seed. One seed of a mango tree can grow into a big tree that has hundreds of fruits. Think of debt that way. From a few dollars to hundreds of dollars, then to thousands you can still manage, and then hundreds of thousands, then it becomes overwhelming.

For some people, it doesn’t have to get to thousands of dollars before it becomes overwhelming. Your income will determine how burdensome your debt will be.

If your income is too little compared to what you owe, you may experience financial stress. Financial experts believe when your debt-to-income ratio is above 40%, you may experience financial stress.

Consumer Proposal and Overwhelming Debt

Let’s talk about when you owe a lot of money and it feels like too much. There’s what we call a consumer proposal that can help. It’s like a helper between you and the people you owe money to. It’s not as tough as going bankrupt, which is another way people try to fix debt problems. It’s like saying, “Hey, I can’t pay everything back, but here’s what I can do.” You have to follow some rules to do it, and not everyone can just decide they want to. It’s a special agreement that needs to be okayed by the people you owe money to. When you speak with a debt expert, he can decide whether a consumer proposal is the best debt solution to solve your problem.

In a nutshell, a consumer proposal is a legal agreement between you and your creditors to pay a certain percentage of what you owe, that is, you pay less than what owe.

Am I Eligible for a Consumer Proposal?

In Canada, to go for a consumer proposal, your debts need to be more than $1,000 but not over $250,000. This doesn’t include your mortgage on your main home. So, if what you owe is within these numbers, you might be in the clear to start. Now, if you’re rolling in cash or have lots of assets, this path might not be open for you. The deal is for people who can’t fully pay back their debts but aren’t totally broke either (that is, you still have a job). You’ve got to show you can offer something to those you owe, even if it’s not the full amount. This plan doesn’t cover all kinds of debts. Secured debts like mortgages and car loans don’t qualify under a consumer proposal. Credit card debt, payday loans, etc, qualifies under a consumer proposal. So, a consumer proposal is about finding that middle ground where you’re stuck with debt but can still pitch in a bit to settle things.

Advantages of a Consumer Proposal 

First off, your creditors will chill. They have to stop all those nagging calls and letters. And if they’re taking a piece of your paycheck, that stops too. Your credit score takes a hit, for a while, but not as bad as if you filed for bankruptcy. It’s like stumbling but not falling flat on your face.

Then there’s the part about keeping your assets. With bankruptcy, you might lose things you own, but a consumer proposal lets you hold onto important assets like your home and car, as long as you keep up with the payments you agreed to.

Also, it’s not forever. You agree on a payment plan, usually over 5 years max, and if you stick to it, the rest of the debt gets wiped. So, it’s like getting a second shot without losing everything you’ve worked for.

After Completing the Consumer Proposal 

After you finish your consumer proposal, you get a fresh start. But since your credit score took a hit, now is the time to rebuild it. Start small, like with a secured credit card, and always pay on time. It’s about showing you can handle money smartly now.

Your proposal stays on your credit report for up to 6 years from when you started. But don’t let that get you down. Use this time to get your finances in shape. Make a budget, stick to it, and start saving little by little.

Think of it as a lesson learned. You got out of a tough spot with the proposal, so now’s your chance to keep things steady.

Conclusion 

When you have debts that are weighing you down, it can make life tough and it can take away your happiness. You may lose sleep and have headaches. However, with a consumer proposal, you can have a fresh start. Your debt can be reduced by up to 80%, and interest will stop immediately. You can speak with one of our debt experts at EmpireOne Credit to schedule a free consultation with us. Call us at (416) 900-2324 to speak with us today. Being debt-free feels good!