In this guide, we break down the top 5 most effective ways to get debt relief in Canada. You’ll learn how each option works, who it’s best suited for, and what to expect at every step. From consumer proposals to bankruptcy, we’ll help you make sense of your choices so you can move forward with confidence. Ready to get your finances back on track? Let’s see what’s possible and how to find the right solution for your situation.
Key Points:
- What is debt relief in Canada?
- The top 5 options for debt relief in Canada
- How does debt relief work in Canada?
What is debt relief in Canada?
Debt relief refers to any structured process that helps reduce, manage, or eliminate unsecured debts. In Canada, debt relief solutions range from informal budgeting help to legally binding agreements that reduce the total amount you owe.
Debt relief options can help with:
Depending on your financial situation, you may qualify for a formal plan through a Licensed Insolvency Trustee (LIT).
The top 5 options for debt relief in Canada
While there is no one-size-fits-all answer when it comes to dealing with personal debt, here are the five most common and effective debt relief options in Canada.
1. Settle your debts legally with a consumer proposal
A consumer proposal is a legally binding agreement arranged through a Licensed Insolvency Trustee (LIT) that allows you to settle your debts for less than the full amount. It’s a popular alternative to bankruptcy for individuals with unsecured debt between $1K and $250K, who are struggling to keep up with payments. Once filed, all interest charges stop immediately, and creditors are legally required to halt collection efforts. You’ll repay a portion of your total debt through fixed monthly payments over 3–5 years, based on what you can reasonably afford.
Pros of a consumer proposal:
- Write off up to 80% of your unsecured debt
- Legally stops interest, collections, and wage garnishments
- Keep your home, car, and other assets
- One fixed monthly payment, up to 5 years
- No bankruptcy which means less impact on your credit (R7 vs R9)
- Filed by a Licensed Insolvency Trustee with no upfront fees
Cons of a consumer proposal:
- Stays on your credit report for 3 years after completion or 6 years after filing—whichever comes first
- Must stick to payment schedule—3 missed payments can void the proposal
- Not all debts are included (e.g., secured loans, student loans under 7 years, child support)
- Creditors can reject the proposal if it’s too low
2. Create a debt management plan
A Debt Management Plan (DMP) is a structured repayment plan arranged by a non-profit credit counselling agency. It combines your unsecured debts into one monthly payment, often at a reduced interest rate. A DMP is ideal for people with steady income who are overwhelmed by high-interest debt, like credit cards or payday loans. Here’s what you can expect:
- Reduced or eliminated interest rates
- You’ll make one monthly payment to the LIT, which then distributes the funds to your creditors.
- A plan that typically runs 3 to 5 years, depending on how much you owe.
Pros of a debt management plan:
- Keeps you out of bankruptcy
- Professional budgeting help
- Protects your credit more than insolvency
Cons of a debt management plan:
- Doesn’t reduce the total amount you owe
- Some creditors may not participate
3. Combine your debt with a debt consolidation loan
Debt consolidation combines multiple unsecured debts, such as credit cards, personal loans, or payday loans, into a single new loan. This makes your finances easier to manage by giving you just one monthly payment instead of several. Debt consolidation is best for people with fair to good credit who want to simplify their repayments and get back on track without entering a formal debt relief programme.
Pros of debt consolidation:
- Simpler debt repayment
- May improve credit score over time
Cons of debt consolidation:
- May require collateral
- Doesn’t work if your credit score is low
- Doesn’t reduce debt, only restructures it
- Often comes with high interest rates
4. Negotiate with creditors through a debt settlement
Debt settlement involves negotiating directly with your creditors to settle your debts for less than the full amount owed, usually through a one-time lump sum payment. It’s best for people who’ve fallen behind on payments. If successful, debt settlement can reduce your total debt by 30–60%.
Pros of a debt settlement
- May eliminate debt faster
- No formal legal process required
- Potential to reduce what you owe by 30-60%
Pros of a debt settlement
- Risk of scams if you use an unlicensed company
- Impacts your credit report for up to 6 years.
- You could owe tax on the amount you didn’t repay
5. Clear your unsecured debts through bankruptcy (as a last resort)
Bankruptcy is a legal process that eliminates most unsecured debts and is typically considered a last resort. It’s designed to give individuals a fresh start when no other options are realistic. Bankruptcy is best suited for those with little to no income and overwhelming debt that can’t be managed through other debt relief options. It’s filed through a LIT, and most unsecured debts are discharged within 9 to 21 months.
Pros of a bankruptcy:
- Full debt elimination
- Stops all legal action from creditors
- Protects basic assets and income
Cons of a bankruptcy:
- Major impact on credit
- Certain assets may be lost
- Not all debts can be discharged
How does debt relief work in Canada?
Debt relief is a clear and structured process designed to help manage or eliminate what you owe. Each option works differently, though the overall journey typically involves these key steps:
1. Reviewing your financial situation
The first step is taking a close look at your income, expenses, total debt, and assets. This helps determine what you can realistically afford to repay.
2. Identifying the types of debt you owe
Not all debts are treated equally. Credit card balances, payday loans, personal loans, and tax debts are usually eligible for debt relief. Mortgages, car loans, and other secured debts often need to be handled separately.
3. Choosing the best approach for your situation
Depending on your income, credit score, or amount of debt, a Licensed Insolvency Trustee (LIT) will recommend your most suitable option, such as a consumer proposal or even bankruptcy.
Say goodbye to your debt with Harris & Partners
If debt has taken over your finances, there are real, practical solutions available. From bankruptcy to consumer proposals, help is out there. And the sooner you act, the more options you’ll have. Take the first step today; book a free consultation or speak to a trusted debt relief professional in your area.
