At some point in the transition to a new lifestyle after the end of a significant relationship, the stress of your debt load may mean that you should consider a consumer proposal. A consumer proposal is an effective way to get out of debt and significantly reduce the stress caused by financial difficulties. However, I often find that people are overly concerned about its effect on their credit rating. Don’t let this stop you from considering one. I’ll approach the topic of credit ratings and consumer proposals from two perspectives, starting with why you shouldn’t be looking for credit in the first place and what does “good” credit really mean?
If you’ve come to the point where you’re looking at debt management solutions then you’re in a financial position where you shouldn’t be looking to take on more debt. With only one income supporting your household now the temptation is high to use credit, but it’s a dangerous method of using debt to manage expenses—and it’s often the number one reason that people get into an unmanageable debt situation in the first place. Using credit, minimum payments may seem manageable but it’s not difficult for debt levels to rise out of control. This is compounded by the fact that at this point in your life your circumstances are fluid and can easily change. For example there may be a change in the support payment you’re required to pay, or conversely, there may be a reduction in payments to you. It’s better for you to focus on financing your lifestyle change rather than worrying about obtaining new credit at this point.
What does “good” credit really mean? Good credit relates to the ability to borrow at the best interest rates. When household income is reduced, eligibility for increased credit facilities may be lost. Therefore good credit has a limited meaning in a transitional lifestyle situation like a divorce or separation which has already affected your financial position. If you’re struggling to meet your financial obligations and have missed payments, these factors are reportable on your credit bureau report for six years and already have a negative impact on your credit rating. Although a consumer proposal will be reported on your credit bureau report for three years after completion of the terms, you have the flexibility to pay off your consumer proposal sooner, thereby reducing the reporting period on your credit bureau report. So the sooner you get your debt situation under control the sooner it will be cleared from your credit bureau report. In addition, there are ways to rebuild credit during the currency of your proposal.
These two discussions are how I explain to people that worrying about their credit rating at this point in their life isn’t worth it and should be a much lower priority than other events during the transition to a single income household. A consumer proposal allows the debtor to maintain their dignity, knowing they repaid their debts to the best of their ability and to the satisfaction of the creditors, but within their financial means during a challenging time in their lives.
Licensed Insolvency Trustee
Melanie is a Licensed Insolvency Trustee, a Lawyer and a Partner with A. Farber & Partners Inc., a firm that has helped people resolve their financial difficulties for over 35 years. See Melanie’s profile at http://www.thedivorceangels.com/vendor/melanie-wengle/