# Pay off Consumer Proposal or fund TFSA



## trvfsub2 (Apr 20, 2011)

Hello,

First time poster and a sensetive post so be kind, BUT i will take brutal honesty.

The wife and i are in a Consumer Proposal, i know it is very bad but we are trying to change. We both make OK money (90,000/yr combined) and she has a good pension plan. No mortgage(our choice) and no kiddies.

We are both 36 and have 3yrs left to pay the Proposal off. So my question comes because after the proposal we made some major lifestyle and job change(me) so we actually have a lot of cash left over every month.

Should we accelerate the Proposal payments and have it paid off in one to one and a half years or pound the savings/TFSA/or RRSP?? All of which we have virtually nothing.

Let'em fly, all comments are welcome.

Thanks,
trvf~
(trying to grow up)


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## Dana (Nov 17, 2009)

Pay off the proposal. Since the clock starts ticking on how long the cp will affect your credit report from the end date of the cp, you can lessen the length of time the cp will be reflected on your credit report by paying it off sooner. Plus your creditors have taken a loss on interest owed to them and likely a portion of the principle owed to them and are entitled to be paid before you save money, IMO. 

Since it sounds like your financial situation has changed since you filed the proposal and there is now more money available to benefit your creditors, check your cp papers for a "windfall clause" which states that unexpected gains are distributed to benefit your creditors.  While this clause is aimed at windfalls such as inheritances and lottery winnings, you should run this past your trustee.


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## the-royal-mail (Dec 11, 2009)

What the heck is a consumer proposal?


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## trvfsub2 (Apr 20, 2011)

It is pretty much Bankruptcy just with a 5yr larger re-payment plan.

But where it differs is as the other poster mentioned, windfalls do not matter. Ours was not a windfall as much as i chenged jobs to make 10g more and we sold our money pit house that we truly hated.

I get the credit reporting idea, however I do not care about that as we plan to do cash the rest of our lives.

trvf~


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## Dana (Nov 17, 2009)

the-royal-mail said:


> What the heck is a consumer proposal?


A consumer proposal is an alternative to bankruptcy. Your creditors agree to take payments for an agreed upon amount of time and agree to stop charging interest and write off a portion of the principal. Unlike bankruptcy, consumer proposal can allow you to keep some assets (home, RRSPs, etc). 

More about consumer proposal.


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## DavidJD (Sep 27, 2009)

Good for your seeking advice, on a sensitive and personal topic for you.

It shows you are seeing the light at the end of a financial burden and want to get back on a more stable financial footing.

I hope you get a lot of useful information to improve your family's situation.

Definately payoff the Consumer Proposal.


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## OhGreatGuru (May 24, 2009)

Definitely pay off the Consumer proposal. Stay focused on digging yourself out of that debt pit. If you miss a single payment you can bet your creditors will promptly come after any other savings you have.


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## sags (May 15, 2010)

I would have to disagree somewhat.

You are paying 0% interest on the proposal.

Due to the proposal, your credit record is trashed and you can't borrow money anywhere.

Your first priority is to build savings, and you can do this through a TFSA. You need the savings to shield from unexpected emergencies, such as car repairs.

Accelerating monthly payments to your proposal will pay it off sooner, and it would accelerate having the proposal removed from your credit file sooner, but it is going to stay on your report, and affect your credit rating, for 3 years after you pay it off, no matter what.

If you put the extra money into a TFSA, you can withdraw it in the future to pay of the proposal. If you can achieve a return on your capital of 6-8%, you are money ahead and you have available emergency cash.

If you increase monthly payments and pay the proposal off in 18 months, or you save the money in a TFSA and pay the proposal totally off in 18 months, the results to your credit file are the same.

The creditors agreed to the proposal and are bound by the terms, just as you are. If you increase your wages, inherit money, or win a lottery, the obligation owing to the creditors doesn't change.

Paying off the proposal is a good idea, but not until you have sufficient savings on hand.

You can also consider getting a secured credit card. You send them cash and they hold it as collaterol. The credit limit will equal the amount of cash on deposit. That gives you access to credit through the credit card, and you will have savings with the lender. Win....win.........unless you can't control your spending.


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## sags (May 15, 2010)

OhGreatGuru said:


> Definitely pay off the Consumer proposal. Stay focused on digging yourself out of that debt pit. If you miss a single payment you can bet your creditors will promptly come after any other savings you have.


Actually, if you miss a 3rd payment, the proposal is nullified and the creditors will seek full payment plus interest, minus the amount paid under the proposal.

Usually, people who default on a consumer proposal end up filing bankruptcy.

It would be a good idea to keep 1 payment ahead on the proposal, by paying the equivalent of one extra payment to the trustee.


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## trvfsub2 (Apr 20, 2011)

*thanks*

Thanks for the notes everyone.

SAGS, i was thinking that way but was not sure. We have nothing stopping an emergency right now. LOVE the idea of saving it in a TFSA and then paying it off or not depending on how fast we wanted credit back in our lives, which i can say we will never do again. Maybe only a retirement condo, but that is 30yrs away.

Cash will be KING, we have LOTS extra right now but seem to be blowing through it so it has to go somewhere. Auto deposits into the RRSP's at work seem to be working so i will look to see if we can do the same with the TFSA.

Should we both get a TFSA or just one of us you thinks?

trvf~


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## OhGreatGuru (May 24, 2009)

trvfsub2 said:


> Thanks for the notes everyone.
> 
> SAGS, i was thinking that way but was not sure. We have nothing stopping an emergency right now. LOVE the idea of saving it in a TFSA and then paying it off or not depending on how fast we wanted credit back in our lives, which i can say we will never do again. Maybe only a retirement condo, but that is 30yrs away.
> 
> ...


First off, I know nothing about your personal abilities to manage money. But on the balance of probablilities, if you were able to consistently make debt payments and keep savings reserved for truly essential things, you likely wouldn't be in the debt hole you are in now. _"..seem to be blowing through it so it ..."_ suggests that your TFSA wouldn't be safe from spending sprees either, which is why I emphasized debt retirement.

Other than that, SAGS has a good idea, but are you disciplined enough? TFSA are a good way to split income - it will not be attributed back to the higher wage earner. So both getting TFSAs would make sense.


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## sags (May 15, 2010)

OhGreatGuru is absolutely right.

Everything depends on your ability to live within your means, and dedicate yourself to saving money and paying off the proposal.

There IS light at the end of the tunnel, and it isn't far off.

If all the other pegs are in order, you can get a mortgage or car loan, shortly after you pay off the proposal...........but you have to demonstrate to the lender an ability to manage money.

On the other hand, if you stay in a proposal, spend all your free cash, and the poo hits the fan...............you will learn how difficult it can be with no cash or credit.

Good luck............all you need is resolve, and this too shall pass.


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## trvfsub2 (Apr 20, 2011)

*ugh ugh ugh*



OhGreatGuru said:


> First off, I know nothing about your personal abilities to manage money. But on the balance of probablilities, if you were able to consistently make debt payments and keep savings reserved for truly essential things, you likely wouldn't be in the debt hole you are in now. _"..seem to be blowing through it so it ..."_ suggests that your TFSA wouldn't be safe from spending sprees either, which is why I emphasized debt retirement.=QUOTE]
> 
> OhGreatGuru I do so humbly agree, that is why I am so torn. I know if i pay the debt off(throw ADHOC cash at it) and we are now capable at least that is one BIG monkey off da bak.
> 
> ...


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## sags (May 15, 2010)

By the way, hanging around this forum is a good start.

Lots of time tested, experience proven, already did that, kind of advice from very knowledgeable people..............and it's free.

Download a free money budget tool, put in all your bills that are due ahead of time, and follow the money closely. When you can actually see how much you "could" accumulate it is a very helpful tool.

After a short period of time, your thinking changes. Instead of just grab and buy, you start to consider things a little more. The temptation is always there, but over time it is offset by an aversion to spending money.


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## trvfsub2 (Apr 20, 2011)

Thanks sags and guru, i am learning lots here. I actually really enjoy learning and reading about $$.

We are working on Gail's jars, when we stick to them we ROCK. When not, then it is a SHOP SHOP till we drop.

I am working on getting a little part time job to save more and or pay off the proposal FASTER.

trvf~


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## sags (May 15, 2010)

There is an article today that 1/3 of Canadians have nothing in savings. Many are counting on home equity as their only "wealth". That is a precarious position because home equity isn't fluid. If you need cash to pay for a new transmission, you can't just sell the house.

If you earn good money, there is no need to scrimp along. There is a need to save and according to the article most people's savings comes from "forced" savings.

Automatic deductions into a savings account and TFSA are a great idea for many people. Pay yourself first is a common trait among savers.


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## Financial Cents (Jul 22, 2010)

I would definitely pay off the proposal.

Get it done.

You can open a TFSA and you don't have to put money into right away, although doing the former might make the latter too tempting to avoid.

Get rid of debt; you'll also feel so much better 

Good luck with your decision!


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## olivaw (Nov 21, 2010)

> i just had a good sum in the TFSA and went back to the old way and bought a Road Bike


Logically, it makes sense to build an emergency fund to deal with modest setbacks (Car needs a brake job, furnace dies, miss work etc.). The challenge is that you don't appear to be good at leaving savings alone. I'm throwing out some ideas to see what you and others think: 

1) Set savings goals and post your progress in the Money Diaries section of this forum. Documenting progress and feedback from other forum participants might prove to be a motivator. 

2) If you can trust yourself to leave your RRSPs intact, deposit more into RRSPs each month with automatic transfers. RRSPs may not be the best place for emergency funds but your primary goal is to save. When you get better at saving, then you can worry about TFSAs and high interest savings accounts. 

3) Set up a joint account that requires two signatures to withdraw money. Use automatic monthly transfers to deposit funds. (The other person need not be your spouse, but there can be complications if you can't trust the person 100%. A spouse or parent is probably best). 

4) Invest steadily into 2-3 year term deposits. You won't earn a lot of interest but the penalty for early withdrawal might discourage you from cashing in to buy a new toy.


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## TorontoLender (Jan 21, 2015)

trvfsub2 said:


> Thanks sags and guru, i am learning lots here. I actually really enjoy learning and reading about $$.
> 
> We are working on Gail's jars, when we stick to them we ROCK. When not, then it is a SHOP SHOP till we drop.
> 
> ...


This is a older topic but wondering how you guys managed? Were you able to get your spending under control?


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## trvfsub2 (Apr 20, 2011)

TorontoLender said:


> This is a older topic but wondering how you guys managed? Were you able to get your spending under control?


Hi, so here's the update. 

We are one year removed from the consumer proposal. Still renting and loving that freedom. I really enjoy the no daily maintenance. We've both had promotions and our new hobbies in our 40th year on the planet is working OT and focusing on work. Huge change for us. FUN is funded by found money, OT and such. 

Household income is better than from before the Proposal to $125,000.

Rent = $1200
Savings = $2500/mth including DB pensions
Debt = ZERO FOREVER

We can still get better, but it's a start.

trvfsub2


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## My Own Advisor (Sep 24, 2012)

Sensitive topic but you know what, good on you to seek advice, help and simply state the facts.

Pay off the consumer proposal and be done with it.

Then you can move on to fund the TFSA and work with a cleaner slate. 

Best wishes!


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