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Managing Credit Card Debt with a Consumer Proposal

Credit card debt has a way of snowballing fast. One day you’re keeping up. The next, you’re juggling balances and dodging interest like it’s a full-time job.

If you’re in that spot right now, take a breath — because you’ve got options.

A consumer proposal helps you regain control. It reduces what you owe, stops interest, and rolls everything into one manageable monthly payment. You’ll protect your assets and start rebuilding your credit while still in the proposal.

Not sure if it’s the right fit? Book a free consultation. We’ll walk through your options, with no pressure.

What’s a Consumer Proposal?

A consumer proposal is a legally binding agreement, set up by a Licensed Insolvency Trustee (LIT), that lets you repay a portion of your unsecured debt — often up to 80% less.

Instead of juggling multiple payments and high interest, you make one fixed payment for up to five years. No interest. No surprises. And you keep your home, car, and RRSPs.

It’s one of the most effective ways to deal with credit card debt and begin rebuilding your financial life, without wiping the slate clean (with negative impacts) like bankruptcy does.

How as Consumer Proposal Affects Your Credit

Credit scores feel like a mystery sometimes. One minute they’re up, the next they’re dropping 50 points because you missed a phone bill by two days.

So it’s no surprise that when people hear words like consumer proposal or bankruptcy, their first thought is: “But what will this do to my credit?”

Yes, your credit score will take a hit — but it’s not the end of the road.

When you file a consumer proposal, it’s recorded on your credit report.

Equifax and TransUnion remove it either:

  • 3 years after you complete all payments, or
  • 6 years from the date you filed — whichever comes first.

Bankruptcy typically stays on your credit report for a longer period, often up to 7 years.

A Word About Credit Scores and Ratings

It’s easy to get attached to your credit score, especially when it feels like it defines your financial worth. But here’s the truth: Plenty of people with “good” credit are carrying loads of debt behind the scenes. And plenty of people with lower scores are taking real steps to improve their situation — like filing a consumer proposal.

So if your score takes a temporary dip, it doesn’t mean you’re moving backward. In fact, it could mean you’re finally moving in the right direction.

With time, consistency, and the right tools, your credit, even on a consumer proposal, can grow stronger and more sustainable.

How to Recover Credit During a Consumer Proposal

You’re not starting from zero. And no, you’re not cut off from credit forever. Here’s how you can rebuild wisely:

1. Get a secured credit card

A lot of people think filing a consumer proposal means saying goodbye to credit cards, but that’s not the case.

With a secured credit card, you pay a refundable deposit (usually around $500), and that becomes your credit limit. From there, it works just like a regular card: use it, get a bill, pay it off.

Even better? These cards report to credit bureaus, so every on-time payment helps rebuild your credit during the proposal. It’s one of the best ways to show lenders you’re managing your money well and starting fresh.

2. Try a credit-builder card

If you don’t have the cash for a deposit, some lenders offer credit-building cards with lower limits. They’re not fancy, and the interest rates aren’t always great, but if you use them wisely and never carry a balance, they’re a solid stepping stone.

3. Make your payments on time (and in full if you can)

Rebuilding credit is all about consistency. Pay your bills on time, every time, starting with your secured credit card, phone, utilities, and consumer proposal payments.

Even small late payments can hurt your score, but steady ones build it back up.

4. Keep your usage low

Even if you get approved for a small limit, try not to use all of it. A good rule of thumb? Stay under 30% of your limit (so on a $500 card, only use up to $150 max a cycle).

5. Check your credit reports

Once a year, you can request your Equifax and TransUnion reports for free. Check for errors, make sure your proposal or bankruptcy is properly recorded, and track your progress.

6. Build Emergency Savings

We all know life loves to throw curveballs. A popped tire, a broken laptop, a surprise dental bill. Without a bit of backup cash, it’s easy to reach for your credit card and undo your hard work.

That’s why building even a small emergency fund is so important, especially while you’re recovering from a consumer proposal or bankruptcy. Start small: even $500 in a separate account can be a buffer between you and another round of debt.

Still Deciding If a Consumer Proposal Is the Right Move?

If credit card debt has taken over and you’re not sure what to do next, you’re not alone—and you’re not stuck. Rebuilding your finances takes time, and choosing the best path forward can feel like a big decision.

If you’re still weighing your options, it helps to understand how consumer proposals and bankruptcy compare.

Bankruptcy and Consumer Proposal: What’s the Difference?

When you’re overwhelmed by debt (especially credit card debt) it’s common to hear about two main solutions: a consumer proposal or bankruptcy. Both options:

  • Stop creditor actions like wage garnishments and collection calls
  • Help you move forward when you feel stuck

Choosing between the two comes down to what makes the most sense for your situation — how much debt you have, your income, and what you want to protect.

What Happens When You File for Bankruptcy?

Bankruptcy is often a last resort — but when credit card debt and other bills become unmanageable, it can offer a clean break.

It clears most unsecured debt (like credit cards, payday loans, and personal loans), though you may need to give up certain assets, like investments or a second vehicle, depending on your situation.

The process takes about 9 to 21 months for first-time filers and is guided by a Licensed Insolvency Trustee.

It has a greater impact on your credit than a consumer proposal — but for some, it’s the reset they need.

If You’re Struggling with Credit Card Debt, Let’s Talk

If your credit card debt is piling up, your phone won’t stop buzzing with creditor calls, and your payments are slipping behind, you’re not alone. And you don’t have to figure it out by yourself.

At Farber, we’ve helped thousands of Canadians just like you get out of debt, rebuild their credit, and feel hopeful again.

Your first consultation? Free. There’s no pressure and no judgment. You’ll just get a conversation about what’s possible — and a little more breathing room than you had yesterday.

Let’s talk! We’re here when you’re ready.

Posted

31st October 2023

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