He said "will you marry me?" and you said "Yes! Of course I will!" But what the heck do you do, six months later, when you're knee-deep in engagements gifts and RSVPs to your destination wedding and you find yourself in the incredibly uncomfortable and seemingly impossible position of not wanting to marry this person after all. But now you have to, right? Wrong.
Your family and friends have bought plane tickets and put down deposits on accommodations you recommended somewhere in paradise. If you don't get married, they all lose their money and you feel like a horrible person and you're backing out of an engagement. Seems like a losing proposition from every single angle. But it's what you've got to do if you don't want to spend the rest of your life married to the person to whom you've become engaged. It's always better to be alone for the right reasons than together with somebody for the wrong ones. Everyone will forgive you and understand your decision eventually (except perhaps your ex-fiancé) because nobody who loves you wants to see you make a huge mistake with your life. But I'm not going to pretend that you don't have a big mess to untangle to call off the whole party.
Once you have truly made the decision to cancel the wedding, first you have to make sure your partner understands what's about to happen and try to be on as much of the same page as you can be. If only one of you wants to call off the wedding, do not expect him or her to help you manage the chaos and havoc your news is about to wreak. You will survive the devastation, but you probably wouldn't have survived the marriage if this is how you're feeling. So treat it like a Band-Aid, and rip it off as fast and painlessly as possible. But do it the right way.
You should talk to both sets of your parents as soon as possible. It would be ideal if you can do it together, but if that's not practical under the circumstances, it's still important to reach out. If for some reason you cannot talk with his/her parents or they will not talk to you, please take the time to write them a heartfelt letter explaining how sorry you are that things went so far and wishing them all the best and thanking them for their support.
Practical matters. You need to IMMEDIATELY send out a note in the mail to all of your invited guests -- even the ones who RSVP'd "no" because most of them are still planning to send you a gift and they must be notified. Email is not sufficient. You can hand-write these or put them through a printer, but they need to get stamped and go in the mail if your actual wedding invitations were sent by mail. And it should happen within 48 hours of making the big decision so that people stop making travel plans. If you advertised a reception back home for those who couldn't travel to your destination wedding, you need to make sure it's clear that the actual engagement is cancelled, not just the out-of-town wedding. Something like this works -- you don't need too much detail:
"We regret to inform you of the cancellation of the engagement of Susan Smith and Bob Hope. All wedding plans have been discontinued. We sincerely apologize to any of our guests who have been inconvenienced."
Next, all the gifts need to go back -- immediately. You can actually include the wedding cancellation note in the top of the box and mail it together as long as you do it fast. Otherwise, you're going to have to write a separate "thank you anyway" note inside the box. Theoretically, you shouldn't be using your engagement, shower or wedding gifts before you actually get married anyway so you shouldn't have trouble giving them back if they're all still sitting there in their original packaging. Box it up and mail it all out. Enlist the help of a good friend and have the materials and sit down and do it all in one day and take them to the post office and get them out of the house. I know this sucks. I know it hurts. Band-Aid theory -- do it fast and get it out of there so you can move forward. The longer you're stepping around the pile of crap you need to send back to your friends and family, the longer you're not going to be able to stop thinking about it.
If you have broken the rules and used a gift to the extent it cannot be returned, try to purchase a replacement to give back to the giver. Or explain the situation if the giver was a close friend or family member who would understand. But that salad spinner from your parents' neighbor has to be returned in its original box, even if you have to go buy a salad spinner to do it.
I'm assuming that you've probably looped in your wedding party along the way -- they're usually your best friends and family -- so they should be the first to get the calls after your parents, before the paper announcements go out. Don't let them hear it through the grapevine or a note -- make a phone call or personal visit. If your friends have already bought wedding attire and you can afford to reimburse them for it, do so. They may even be able to return some things, depending on what you'd had them get. Do whatever you can to lessen the burden of your decision on those who were supporting your plans.
With that said, I cannot stress enough that you cannot take on -- financially or emotionally -- the overall impact of the wedding on your guests who had already made their plans to travel. Many of them will still take vacations, have the ability to change their destinations, or have bought trip insurance that allows them to recoup pretty much everything -- so they're not really losing much. But even if they are, it's a very small price to pay in comparison to the lifelong consequences of you marrying the wrong man or woman.
One very specific tip for the guys out there reading this -- if you are the one who is cancelling the engagement, this list of stuff to do is your problem EVEN IF SHE WAS DOING ALL THE PLANNING. Face it, if you have just cancelled the engagement on a woman who was planning your wedding herself for months, you have got to pick up the pieces to a large degree. She is probably going to have to be the one to deal with all the vendors, venues and actual deposits/contracts and other cancellation nightmares if she did the initial work. The very least you can do is take responsibility for handling the notification and gift return part of this. You owe her that much if you were both planning to get married.