What is a Consumer Proposal?

A Consumer Proposal is a legally binding offer to creditors by a Licensed Insolvency Trustee through the Bankruptcy and Insolvency Act. After acceptance, no creditors can take any action to collect the debt.

Who is a Consumer Proposal for? 

It is for people drowning in debt, who cannot make the minimum payments on their unsecured debts (ex: credit cards, not mortgage) over a long period of time. The combined amount of debt needs to exceed $10,000.

What are the Benefits of a Consumer Proposal?

  • It decreases the debt owed by as much as 85%. 
  • It is less severe than bankruptcy, with a smaller impact on finances and credit rating.
  • A proposal is created on your behalf and negotiations are done for you. All calls and letters from creditors stop.
  • An incredible amount of stress is removed. 
  • People who are overwhelmed by debt can get back on their feet again.

What are the Negatives?

  • It costs about $2000 for a consumer proposal.
  • The affect on a credit rating is R7 for the length of the proposal (usually 5 years) + 3 years for a total of 8 years.
  • Bankruptcy reduces a credit rating to R9 for 6 years after discharge from bankruptcy.

Our Experience

Our minimum credit card payments were higher than $1100 a month for a long period of time. While our income paid most of our living expenses, including our mortgage and most of our utilities, we had nothing left to pay the 3 credit cards and Line of Credit. This continued for months while we kept hoping things would get better, that our income would increase, and we could repay our debts. One by one, each debt went to collections and the phone calls and letters got worse. (for the rest of Our Financial Disaster Story, click here).

We were referred to a debt specialist, who calculated our income and expenses, assets and liabilities, and suggested a consumer proposal as a solution. We decided that we could make payments of $250 a month. That was a bit of a stretch for us, but much more possible than $1100! 

When we finished all the paperwork, they prepared our proposal and said they were offering our creditors $7500 instead of $32,000. As soon as the proposal is received, all phone calls and letters to us stopped and our creditors have 45 days to accept the offer. I asked why they would accept that. In creating our proposal, she looked at what the creditors would receive if we declared bankruptcy, and then offered them more than that amount.

HOW TO SPEND LESS THAN YOU EARN (or, how not to live on the financial edge)

HOW TO SPEND LESS THAN YOU EARN (or, how not to live on the financial edge)

Is it even possible?

This is hard. I know! We were barely making ends meet, using credit cards for unexpected emergencies, and transferring between cards to keep the interest low.

For a while it was a game and then we got stuck. We missed a few payments and the interest rate jumped to 24.9%! Then we couldn’t make the payments (for the rest of our Financial Disaster Story, click here). Most of us live this way. We drive ourselves, keeping just ahead of our financial obligations. While living at the edge of our financial means has some superficial benefits, the stress can negatively impact our health and relationships and steal our peace and well-being. We need to ask ourselves if it is really worth it.

Fantasy vs. Reality

Someone once said, “Reality is what you run into when you’re wrong”. There is an element of fantasy in living on the financial edge. While it is human nature to hope for the best, we know that something will inevitably go wrong. It could be a dental bill, a car repair, or a pandemic that pushes us over the edge. The impact can be severe if we have no buffer built into our finances.

How did we get to the edge?

Our society promotes living on the financial edge since our economy grows through borrowing and spending. We are bombarded with advertising telling us to buy whatever we want and the availability of credit removes the natural barrier to buying things we can’t afford. We’ve also bought into the idea that the perfect house, the cool car, or the dream vacation will make us happier (deep down we don’t really believe it, but the messages are constant and appealing). Unless we intentionally choose to think differently, we will be swept along into debt.

How do we step back from the edge?

Most of us spend all we earn, every month. One way to stepping back from the edge is to revisit the choices that lead us there. Living on the financial edge doesn’t just happen to us. It is the result of financial choices that did not take into account the unforeseen future that has downs and ups.

– Maybe when you graduated from university, you bought or leased a new car because you needed to get to work. The need is legitimate but there is a cheaper way to meet that need.

– Maybe you purchased a home that your family could grow into when you could have chosen a more affordable house with a cheaper mortgage.

Once we’ve identified the past decisions that are pushing us to the edge we can start to take back control. We can reevaluate those decisions and make changes.

For some it may be selling a house and purchasing a less expensive one, buying a used car instead of making payments, or cutting back on daily spending habits. The goal is to start making financial decisions that liberate some money in order to pay down debt, create an emergency fund, and have some financial breathing room for the next time life happens.

It is possible!

I have a friend who consistently, year after year, lives on 70% of her income. She saves 20%, gives away 10%, and comfortably lives on 70%. She intentionally chose to buy a home that was a little less expensive, rather than the one she could almost afford. She has money to travel internationally every few years, often spending an entire month in another country. She plans ahead and has money set aside for another vehicle in advance. I’ve seen her living this way for the past 6 years. She has peace. She has no financial stress. She is not afraid of the future.

I want to be like her when I grow up! I’m not there yet. But this is where I want to be. Prepared. Unafraid. Looking forward with Hope.

MAKING MORE MONEY? (vs. becoming more trustworthy?)

MAKING MORE MONEY? (vs. becoming more trustworthy?)

Does more money mean less debt?

What is the solution to getting out of debt? Making more money? That is what we all tend to think.

However, the more we make, the more we spend. I have far more debt now than in university. Typically, as our pay check goes up, our spending goes up proportionally, resulting in higher debt. We’ve all heard the stories of lottery winners who, after two years, are back in the same financial position they were in before winning. Obviously, we need to dig deeper to answer this question.

The solution is not ‘more money’

Please don’t misinterpret! Not having enough money is stressful and finding ways to increase your income is a good thing that can bring needed financial security. However, if we want to get out of debt, we need to re-evaluate both our spending habits and our financial priorities. A good place to start is looking at our sending through the lends of: “Am I being financially responsible or “trustworthy” with what I have?”

How do I become trustworthy with my money?

Let’s be thoughtful about how we spend and what we have. Asking ourselves the following questions is a good place to start.

Are we buying things we don’t yet need?

  • Let’s use what we have before buying more. This includes: cleaning products, bathroom supplies, hair care, and items in our pantry. It can be very revelling to assess the value of items stored in our cupboards, freezer, and closets. Typically, we try to eat all the food we have before we buy more. Right now, we do have lots of extra rice and beans in case we need them for isolation.

Are we wasting what we already bought?

  • Let’s not waste what we have. I am still using a deodorant that most people would consider empty. I am scraping it out with my fingernail. There is still a week’s worth in there!

Do we have money tied up in things we don’t need or hardly ever use?

  • Let’s sell things we don’t need. I have some music books to sell. I have started a box of things I don’t need and can sell. As I find things around the house, I add them to the box.

Are we taking care of what we own?

  • Let’s take care of the things we have and be grateful for them. Let’s be glad for our homes and our vehicles and be trustworthy by taking care of them and keeping them clean.

Are we paying off debt and/or saving money?

  • When we “save” money, are we taking that $5 and using it to pay off debt or increasing our emergency fund? “Saving” money and then spending it somewhere else is not helpful.

Are we setting ourselves up for ‘spending success’?

  • Let’s plan our meals ahead of time to prevent impulse spending and paying more than we need to. I shop for groceries once a week. If we don’t have an ingredient, we usually adjust and make do with what we have.

Our goal should be to cultivate a thoughtful approach to spending. Honestly, until I learn to be more trustworthy with the possessions and money I have, I will not handle extra with more care or integrity. When more comes, I don’t want it to slip through my fingers and go to wasteful places. I want to use it wisely, to bless my family, and move us toward financial freedom and living our dreams.

As we become diligent and faithful with what we have been given, we will be trusted with more. This concept is often referred to as one of the laws of financial success. Dani Johnson does a fantastic job explaining this principle and its implications in her DVD series “War on Debt”. Click here to learn more.

WHY IS DEBT SO EASY? (and saving so hard?)

WHY IS DEBT SO EASY? (and saving so hard?)

We are Programmed to Borrow

The foundation of our society is debt, which  leads to a culture based on consumerism. Our banks create money when we borrow and all businesses are dependent on consumers buying their stuff.

Ads are everywhere. We are programmed to spend, to feel good when we buy something new, and to think that things will satisfy an empty place inside. Because nobody makes money when you save, they are all competing for our money and creating enticing offers so we will spend.

Debt is our default setting and Consumer is our name.

Debt has been Normalized

Did you know that the average person who declares bankruptcy has a shortfall of $200 a month? Did you know most Canadians are only one paycheck away from financial insolvency? This is a precarious place to be. It is also extremely stressful, damaging our health and relationships.

We must recognize the real cost of debt in our lives.

We feel fear, anxiety and dread about:

  • not having enough
  • something going wrong
  • opening bills and credit card statements
  • celebrations requiring giving gifts
  • our kids asking for something extra
  • something breaking (dishwasher, vehicle, furnace)

We must identify our spending habits and evaluate:

  • Where does our money go?
  • Where do we want it to go instead?

It takes a decision and intentional daily effort.

A large ship makes a course correction of only a few degrees. Initially, there change is almost imperceptible, but the destination is altered. Deciding to pursue financial freedom from debt will lead us to a different destination. Chart your course, set smaller goals along the way, and celebrate your progress. You can change your financial future for yourself and your family.

Drastic lifestyle changes are possible when we have a clear goal. I am working towards having a $1000 emergency fund. This is tangible. Right now it is out of reach but each time I put $10 towards this, I feel successful, knowing I am working against debt and making progress.

Changing our thinking, our beliefs, and our goals is required.We must learn new ways and habits: celebrate saving, believe we can become debt free, and imagining a debt free life. Can you imagine how it will feel when you have no debt payments and no mortgage? What would you do with that extra cash? How much would you have in one year?

For creative ways to reduce spending, click here.

We need like minded people to hold us accountable who will praise and encourage us in saving and not celebrate debt spending. They will ask the hard questions: Did you pay cash or use credit? How are you doing with saving?

Freedom is hard. It is a struggle, a war, against our very selves: our wants, our cravings, our desires for immediate satisfaction.

No one becomes debt free by accident. And that is why so few are free.

Join me on this journey. Let’s work together to create a new culture that celebrates living within our means, eliminating our debt, and looking toward the future with hope.

To kick start your journey out of debt, invest in a course that will teach, challenge, and inspire you and connect you to a community of like minded people, journeying together. Click here for War on Debt

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