Canadian Debt Relief

Explore Your Canadian Debt Relief Options

If you find yourself saddled with unmanageable debt, you’re probably feeling overwhelmed and discouraged. The last thing you need is confusing information on what your next steps should be.

That’s why we created the Debt Matters Guide To Canadian Debt Relief.

In this Guide, we describe the most popular options Canadians have to deal with their debt and cover the advantages and risks of each. We also point you in the direction of Canada’s best-equipped financial professionals – so you can set out to achieve the debt relief you seek.

Do I Have a Debt Problem?

Most Canadians know they’ve got a debt problem when they start missing mortgage payments or taking out payday loans. But what if you’re not at that stage yet?

When should you consider your financial situation serious enough to consult a professional for help?

At Debt Matters, we want you to start thinking of your financial health as you would your physical health. There are signs – or symptoms, if you will – to watch for that will let you know you need immediate help from a professional. The sooner you seek help, the better chance you have of dealing with your debt before it gets even more difficult to handle.

Ask yourself these questions:

  • Do I spend more money than I make?
  • Do I rely on credit cards to get by, and only make the minimum payments on them?
  • Am I missing payments on my utility bills?
  • Am I borrowing money from friends or family to make it through the month?
  • Am I starting to receive collection calls or notices?
  • Am I unable to get more credit?

If you answered “yes” to any of the above questions, you need to seek out debt help today.

Many people wait too long to try to solve their financial troubles on their own. In many cases, a little help early on will give you a wider range of options to deal with your debt.

How Did I Get Into Debt?

It doesn’t take much to fall deeper into debt these days. Canadians carry an average personal debt of $20,430, not including mortgage loans. If we include mortgages, that figure rises to an average $74,897 of debt.

It’s important to note that most of our credit card debt has decreased during the pandemic, what with the restrictions on travel and shopping. This is likely a temporary phenomenon. We are, however, seeing higher consumer debt driven by mortgages.

There are a few possible reasons Canadians find themselves taking on more debt:

  • We spend more than we earn, a practice that eventually catches up to us.
  • We were dealt an unexpected curveball in life that upset our ability to make it paycheque to paycheque.
  • We want to own our own home. Salaries have stayed the same year after year while the value of homes in our provinces continue to skyrocket.

If you find yourself drowning in debt, don’t bury your head in the sand. Focus on a plan to dig yourself out.

What Are My Canadian Debt Relief Options?

Below are some of the more popular options Canadians have to deal with their debt.

1. Credit Counselling

There are two types of credit counsellors that offer credit counselling services – for-profit and non-profit.

A. For-Profit Credit Counsellor


A for-profit credit counsellor provides you advice on your financial situation, arranges a repayment plan that they negotiate with your creditors, and helps you make a plan to stay out of debt in the future.


For-profit credit counsellors charge fees for their services that can be quite expensive. They are not bound by any ethical code. If you do ultimately choose this option, be sure you fully understand the fees they charge (as well as any interest on late payments). Agree to pay for only those services you can afford.

B. Non-Profit Credit Counsellor

A non-profit credit counsellor assists you with money management, budgeting, and a plan on how to stay out of debt in the future. They help you make a rundown of your debts and prepare a repayment plan for you that typically spans a period of 3 to 5 years.

These repayment plans are known as Debt Management Programs (DMPs). We cover the advantages and risks of this option immediately below.

2. Debt Management Programs

As discussed above, non-profit credit counselling companies put together Debt Management Programs (DMPs). If your creditors accept the DMP, you will make one monthly payment to your credit counselling agency. The agency then distributes this to your creditors until the debt is paid off.

DMPs work well for those debtors who can afford to repay their debts (typically no more than $15,000 on a couple of credit cards), but can’t afford the interest.


  • You pay little or no interest on the debt you owe.
  • Your debt will be easier to manage, since you only have to make one monthly payment.
  • There are no fees or expenses to worry about other than your monthly payment.
  • Negotiations on debt happen up front.
  • You do not have to default on payments to your creditors.
  • You can be rid of your debt within 3 to 5 years if you make all monthly payments.
  • Non-profit credit counsellors are bound by an ethical code.


  • DMPs do not reduce or cancel your debts.
  • DMPs are voluntary. There is no legal obligation for a creditor to participate in the DMP.
  • You get no legal protection from your creditors. They may take action against you by sending your account to collections or garnishing your wages.

3. Debt Settlement Companies

A debt settlement company negotiates with your unsecured creditors on your behalf. As part of the process, they will advise you to stop making payments to your creditors. Instead, you make payments to the debt settlement company. They then take the money accumulated over time and make a lump sum offer to your creditors to close out that debt.


You may be able to get rid of your unsecured debts by paying less than what you actually owe.


  • You have no guarantee your creditors will accept the debt settlement company’s offer.
  • You pay fees for the service.
  • You must carry out the process with each of your unsecured creditors.
  • The debt settlement company does not make regular, scheduled payments to your creditors. Despite the fact you make payments to the debt settlement company, you:
    • Ruin your credit;
    • Accumulate even more debt (interest, late penalties); and
    • Expose yourself to creditors taking action against you for the outstanding debt.

4. Debt Consolidation

A good option for those with substantial credit card debt is a debt consolidation loan. The consolidation loan is then used to pay off smaller loans.


  • The payment process becomes easier to manage. It is automatic.
  • You make only one payment instead of several to different creditors. This helps prevent the possibility that you miss a payment, which can damage your credit.
  • You potentially reduce the interest on the debt you owe.


  • You need to apply for a consolidation loan. You may not qualify.
  • You still need to repay the full amount of your debts – with interest.
  • Your interest rate may be high depending on your credit score.
  • Your monthly payment may not be affordable for you.
  • This option only takes care of debts included in the consolidation.
  • You may not be able to borrow enough money to deal with all your debts.
  • If you borrow against your home equity to consolidate, you risk losing your home in a foreclosure.

5. Consumer Proposal

A Consumer Proposal is often considered a debtor’s safest, least expensive debt relief option. It is a formal, legal debt settlement program governed by the federal Bankruptcy and Insolvency Act. In order to file a Consumer Proposal, you need a Licensed Insolvency Trustee (LIT).

Your LIT negotiates unsecured debt with your creditors and comes up with a repayment plan that spans a period of up to 5 years. Typically these repayment plans substantially reduce the debt that you owe.

A Consumer Proposal is an excellent option for those debtors who cannot repay their debts in full but want to avoid Bankruptcy and keep their assets.

It bears noting that Consumer Proposals and Bankruptcies are the only debt relief options that offer Canadian debtors legal protection from their creditors.

Once you file a Consumer Proposal or Bankruptcy, an automatic stay of proceedings takes effect. This means that your creditors are stopped from taking any action against you to recover on the debt, including collection calls, wage garnishments, lawsuits, and so on.


  • You can save as much as 70% to 80% on the debt you owe, and pay no interest.
  • You settle most of your unsecured debts without losing your assets.
  • Your monthly payment will be affordable and won’t change during the life of the Proposal.
  • You get legal protection from your creditors, who are legally bound by the Proposal once accepted and approved.
  • You can be debt free within 5 years or sooner if you pay more into the Proposal.
  • Once the Consumer Proposal is complete, your debts are forgiven and you can start to rebuild your credit.


Your credit rating will fall when you file a Consumer Proposal. An R7 credit rating (the second worst rating) will appear on your credit report. It stays there for a period of the shorter of 3 years after you complete your payments or 6 years after you file the Consumer Proposal.

That said, if you’re falling behind on your debt, your credit score is likely already suffering. Through a Consumer Proposal, you can at least achieve debt relief and start on the path to rebuilding your credit.

6. Bankruptcy

Bankruptcy is a legal process regulated by the Canadian government for honest Canadian debtors who cannot afford to repay their debts. Essentially, you surrender your assets to your creditors in exchange for the elimination of your debts.

But you won’t “lose everything” in a Bankruptcy. The Bankruptcy and Insolvency Act (BIA) sets out what you’re able to keep, which typically includes:

  • Most of your personal belongings;
  • Household furnishings;
  • Tools of the trade you need to earn an income; and
  • A vehicle you own valued below the limit set out under the BIA for your province.

Bankruptcy does not cover secured creditors (your mortgage or car loan). To keep these items, you must continue to make your monthly payments. If you don’t, your secured creditors can go after the collateral or assets you pledged against them.

The debts covered in Bankruptcy include credit card debt, overdue bills, unsecured bank loans, lines of credit, payday loans, tax debts, and even certain student loans.

Bankruptcy does not cover certain debts, such as spousal and child support payments, fraudulent debts, and court fines.

Bankruptcy can only be filed with a Licensed Insolvency Trustee. You will have a number of obligations and reporting duties to fulfil during the life of the Bankruptcy.


  • At the end of the Bankruptcy, your debts are legally discharged. This means you’re no longer required to pay them back.
  • You get legal protection from your creditors the moment you file for Bankruptcy.
  • In as short as 9 months, you can finally be debt free.


Your credit rating will fall when you file a Bankruptcy. It gets the worst credit rating available, an R9. This will remain on your credit report for 7 to 14 years depending on when you complete the Bankruptcy.

You should know it is possible to build your credit history even with a Bankruptcy on your file. Getting a secured credit card helps show future creditors that you can manage your credit.

Who Should I Talk To About Canadian Debt Relief?

Your personal financial situation is unique. While there are many Canadian debt relief options to choose from, there is no one-size-fits-all solution.

Debt Matters suggests that…

The best financial advisor to help you get a handle on your debt is a Licensed Insolvency Trustee (LIT).

Licensed Insolvency Trustees Are Qualified

LITs are licensed and regulated by the Canadian government. They have the education, credentials, and experience required to properly advise you on how you can get out of debt. They’re also governed by strict ethical regulations. You can be certain that their advice is based on what’s in your best financial interest.

Licensed Insolvency Trustees Are Versatile

An LIT is truly a one-stop-shop where you can address all your debts.

They are the only professionals who can file a Consumer Proposal or Bankruptcy in Canada for you. LITs can also assist you with every debt relief option available.

Licensed Insolvency Trustees Are Accessible

You can contact an LIT directly. You do not need a referral. Simply pick up the phone and schedule your initial consultation.

Licensed Insolvency Trustees Are Here To Help

Your first visit with an LIT is free.

It’s at this visit that an LIT will review your financial circumstances. They will then advise you of the different debt relief options you have available to you to deal with your debt. There’s no pressure to commit to any solution. When you’re ready to move forward, you’ll have a plan in place and know exactly what to do.