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📅 Last Updated: June 11, 2024
✏️ Written By Caitlin Wood, BA

If you are drowning in debt and need a way out, there are a number of debt relief options available to Canadian consumers. Depending on your financial situation you may be eligible for any one of these options.

Service Type
Debt Relief ProgramMore InfoGet Help Now
Debt Consolidation LoanMore InfoGet Help Now
Debt Settlement ProgramMore InfoGet Help Now
Consumer Proposal ConsultationMore InfoGet Help Now
Bankruptcy ConsultationMore InfoGet Help Now
Consumer Proposal Payoff LoanMore InfoGet Help Now
Credit Rehab Savings LoanMore InfoGet Help Now

Debt Consolidation Loan 

A debt consolidation loan allows you to combine all of your outstanding debt into one singular monthly payment. You can consolidate your debt by going to a bank, credit counselling agency, or any other financial institution that will give you a loan to pay off all of your debts. For this debt relief method to work, you must make sure that the interest rate on the new loan is lower than that of your previous loans. This is beneficial because of the following reasons: 

  • You only have to make one monthly payment. Having to make one payment a month is much more manageable than having to pay five different creditors.  
  • Lowers the interest rate. The whole point of consolidating your debt is to take advantage of a more affordable interest rate. One that is lower than what you were paying with your previous creditors. This decrease in interest will help lower your payments and save you money.
  • Lower monthly payments. With a lower rate, you’ll have lower monthly payments and it will be easier to keep up with your debt burden.
  • Debt can also be paid off faster. Due to the decrease in interest, your overall amount owed decreased and thus requires less time to pay off.
  • Usually have lower fees. Eliminating credit card fees and other bank fees can also save you money in the long run. 

It is important to understand that a debt consolidation loan does not eliminate your debt, but helps you manage your payments and decreases your overall monthly payments and interest. If your debt level is so high that you are unable to keep up with the offered monthly payments, you may be declined. You must also have a pretty good credit score to be eligible for the loan because these types of loans are typically larger and thus riskier for the lender. So, this debt relief option is best for individuals who maintain the capability to pay off their debt but require some help managing their finances. 

Credit Counselling

Credit counselling agencies provide individuals bogged down by debt with a number of services that can help solve their financial troubles. Whether you need help managing money, improving your credit score, or eliminating debt, credit counsellors can provide you with quality information as well as a plan that can help you reach your financial goals. If you are worried that your credit score will be affected by meeting with a credit counselling agency, don’t be. Speaking to a credit counsellor for advice and information has no effect on your credit score.  

How It Works

Credit counselling agencies will set up an appointment for you to meet or speak with one of their counsellors where you will discuss your financial situation. This can include information regarding your income, expenses, assets, and debts. Once the credit counsellor has a good grasp of your financial health and goals, they will offer you a solution that will best meet your needs. The solutions can vary in severity depending on your situation. So, a credit counsellor may advise you about better budgeting measures, taking on a debt consolidation program, or even declaring bankruptcy. 

Learn More About Credit Counselling

Debt Consolidation Program 

A Debt Consolidation program is also known as a debt management program (DMP), which is a service credit counselling agencies provide. You will work with a credit counsellor to consolidate your debts into an affordable monthly payment over a maximum of five years. This includes all of your unsecured debts, loans, and lines of credit.  A debt consolidation program does not eliminate debt but paves a path for you to pay off your debt in a far more manageable and affordable manner.

How It Works

If the credit counsellor believes a debt consolidation program is the right fit for you, they will make arrangements to speak with your creditors on your behalf to propose a repayment plan. If your creditors agree to the plan, you will start making adjusted monthly payments to your counsellor who will then pay your creditors accordingly. Your adjusted payments will likely be lower due to a reduction in your interest rate and/or the increase in payment period. 

Be aware that a debt consolidation program is an informal process and not legally binding, so creditors have the right to contact you and withdraw from the agreement if they choose to. However, most don’t if you stick to your program. If you’re wondering about how this will affect your credit score, a debt consolidation program will affect your credit negatively for two years after you finish the program. But you can completely repair your credit after that by making full on-time payments.

Debt Settlement Program

A debt settlement program is where you or a debt settlement representative will negotiate with your creditors to reduce the amount of unsecured debt owed. For example: if you owe a creditor $4000 dollars in unsecured debt, you may be able to negotiate your way to paying a lump sum amount of $1500 dollars. However, it’s important to note that there are several drawbacks to debt settlement, such as:

  • The high fees debt settlement companies charge regardless if your creditors accept the lower payment offer. 
  • The fact that you must negotiate separately with each of your creditors.
  • If you delay payments while negotiating your settlement, it will negatively affect your credit score and all late fees for the delayed payments will be expected to be paid off if the settlement negotiation goes south.

Debt settlement can also have a negative effect on your credit score as creditors will give each account associated with the settlement a “settled” status instead of a “paid as agreed” status on your credit report. 

Consumer Proposals

A consumer proposal is an insolvency proceeding that will allow you to pay off a portion of your debt over a maximum period of five years. Your consumer proposal will be filed by a Licensed Insolvency Trustee, who will be the mediator between you and your creditors. They will help calculate the amount of money you will have to pay back based on your income, assets, and the amount you owe. The payments will be made to the Licensed Insolvency Trustee who will then pay off your creditors accordingly.

Since a consumer proposal is considered a legally binding contract between you and your creditors, they cannot contact you or file any legal proceedings against you once the contract is in effect. Unfortunately, this will taint your credit score for three years after you complete the proposal, but you are also free to start rebuilding your credit. A consumer proposal is a great alternative option to consider against bankruptcy if you believe you can pay at least a portion of your debt and want to keep all of your assets.

The sooner you pay off your consumer proposal, the sooner you can start rebuilding your credit. Loans Canada works with Marble Financial to help consumers pay off their consumer proposals so they can get back on their feet faster.

Learn More About Filing a Consumer Proposal


Bankruptcy is considered a last resort debt relief option. People who file for bankruptcy are those who are completely overburdened by their debt. This includes all forms of debt except for a select few like student loans. Similar to a consumer proposal, if you choose to declare bankruptcy, a Licensed Insolvency Trustee will handle all the legal proceedings. They will present your file in court where a judge will dismiss your debt obligations and force a stop to all collection efforts against you.

However, when you file for bankruptcy, not all of your assets are protected, some assets may be seized to pay off your debt like your house and car.  Moreover, fifty percent of any surplus income will be used as payment toward your debts for up to 21 months or 36 months if it’s your second bankruptcy.  Your surplus income is determined by the Superintendent of Bankruptcy who creates a table of income limits based on family size. For example, if you make $4000 dollars a month and you are a family of two, then your surplus income would be:  

4000 – 2,743(Superintendent of Bankruptcy income limit for two) = $1257 x 50% = $628.5 dollars. 

Worried about your credit score? Unfortunately, reality is a hard truth to swallow, people who file for bankruptcy are given the lowest possible credit score. This information will affect your credit score for 6-7 years after completing your bankruptcy. Claiming bankruptcy is a decision that comes with a lot of consequences, so be sure to check every avenue before settling on this debt relief choice.

Where To Go To Get Debt Relief Help?

Depending on the debt relief option your situation requires, you’ll either need a credit counsellor for credit counselling, debt consolidation loan, debt consolidation program, or a Licensed Insolvency Trustee if you’re filing for a consumer proposal or bankruptcy. If you are unsure of what debt relief option is best for you, you should first speak to a credit counsellor for advice. If they believe that a more drastic solution is needed, they will be able to refer you to a Licensed Insolvency Trustee.

What is a Credit Counsellor?

A credit counsellor is someone who will help you regain financial stability by providing you advice based on your credit, debt, and income. There are two types of credit counselling agencies you can approach: non-profit credit counselling agencies and for-profit credit counselling agencies. Both require fees, but non-profit credit counselling agencies have a price limit. 

What is a Licensed Insolvency Trustee?

Licensed Insolvency Trustees are federally regulated officials who are authorized to administer bankruptcies and consumer proposals in Canada. They handle all the paperwork and negotiations with your creditors. 

Questions to Ask a Debt Relief Professional

When seeking help for your debt issues from a professional, it’s important to ask the following questions. These questions will help you determine if they are the best fit for your needs. 

What services do you offer?

Understanding your available options is important when making a big financial decision. By educating yourself about the services, you won’t be blindly trusting your advisor. 

What are your fees?

Before signing any agreement, be sure to verify the fees for whichever service they provide.

Fees will vary between all credit counselling agencies, however, for the most part, non-profit credit counselling agencies have price limits and are based on a sliding scale in Canada. In general, you may have to pay an advance fee regardless if your creditor can reduce your debt. And if you’re looking into debt settlement, proceed with caution as debt settlement companies tend to charge very high fees.

What are your qualifications? Do you have a license?

In Canada, credit counsellors are not obliged to have credentials in order to provide their services. Hence why you should confirm if the credit counsellors you are working with are accredited and trained to effectively deal with your unique situation.

How much guidance do you offer?

Asking how closely your credit counsellor will be working with you may be pertinent to your situation as each person varies in their need for support. 

How to Choose a Debt Relief Service

Everyone has different financial issues they need to cope with. When choosing a debt relief service it is important to understand your options. Gaining an understanding of all available choices will increase your chances of getting rid of your debt more effectively.  Below is a list of questions you should answer before choosing a debt relief service. 

What types of debt do you have? 

The type of debt you have is crucial in figuring out which debt relief services are available to you. 

Debt Consolidation Loans, Debt Consolidation Program, and Debt settlements

For debt consolidation programs, debt consolidation loans and debt settlements only cover unsecured lines of credit, loans, and credit card debt. Secured debt is usually secured against an asset like a car or house, so lenders can just seize your assets if you default on your payments.

Consumer Proposal and Bankruptcy

Consumer proposals and bankruptcy cover almost all types of secured and unsecured debt except for a few exceptions. It excludes debt like student loans, fraud debt, and debt from spouse/child support payments.

Consider the eligibility requirements for each option.

Depending on your debt type, debt level, ability to pay, assets and expenses, you may be eligible for any one of the debt relief options. Each debt relief service has limits and restrictions. Knowing these restrictions will avoid any confusion you may have when your credit counsellor advises you to take on one service over another.

Debt Settlement

Since most creditors will agree to settle your debt with a one lump sum payment, it’s necessary to have enough cash on you to make that payment once the agreement has been made. If you don’t have the cash to qualify for the lump sum amount, you won’t be eligible for a debt settlement. While there is no debt limit to be eligible for a debt settlement, you do need the funds to back up whatever amount you are trying to settle for. 

Debt Consolidation Loan

To be eligible for a debt consolidation loan you must possess the characteristics of a person who can be accepted for a larger loan with an affordable interest rate. That means you must have an income, a qualifying credit profile, and the capability to pay for your debt along with your basic needs. Technically there is no size limit for a consolidation loan, however, your debt level must be in range with your capacity to pay off the loan within the period of time indicated (typically around 5 years).

Debt consolidation program

A debt consolidation plan doesn’t require you to get a new loan, but it does require you to pay off your debts through carefully calculated monthly payments by your credit counsellor. This means you will require an income that can afford the payments and be able to pay for your basic needs. Like a debt consolidation loan, your eligibility is dependent on your capability to pay for your debt along with your basic needs.

Consumer Proposal

To be eligible for a consumer proposal you must have at least $1000 dollars in unsecured debt up to $250,000 dollars of secured and unsecured debt altogether. You must also have an income that will allow you to pay off a portion of the debt within the allocated time. 


To be eligible for bankruptcy you must owe at least $1000 dollars to your creditors. Nevertheless, this is a very small number to declare bankruptcy with and most individuals facing bankruptcy usually have a lot more than $1000 in debt.

Consider the types of fees that are charged and how will they affect the overall cost of the program.

Before agreeing to any of the programs, check to see how the fees affect the amount of money you’d save with the program. For example: If you’ll be saving a total of $500 dollars in interest with the debt consolidation program, but you have to pay a fee of $300 dollars. The $200 dollars you’ll save probably isn’t worth the two-year negative impact on your credit score. 

Will the service/program affect my credit score?

Depending on the service you choose, it may affect your credit score.

Credit CounsellingDoes not affect credit score
Debt consolidation loanPositive effect, if you don’t miss payments
Debt consolidation programAffects credit score negatively for up to 2 years after the program is completed
Debt Settlement Depends what status your creditors report on your credit report after debt is settled:Positive – “paid as agreed” Negative – “settled”
Consumer ProposalAffects credit score for up to 3 years after completion of consumer proposal
BankruptcyAffects credit score for 6 to 7 years after you complete your 1st bankruptcy

How long will it take to complete the program?

Credit CounsellingJust a phone call away, typically up to 5 years
Debt consolidation loan1 to 5 years, dependent on debt level
Debt consolidation programJust a phone call away, typically up to 5 years
Debt Settlement Depends on your creditors
Consumer ProposalMaximum of 5 years
Bankruptcy9 to 21 months (depending on your income surplus)

Steps to Take Before Committing to a Debt Relief Service

Step 1: Research company

Before you commit to any debt relief service it is important to find out if the company you’ve chosen is trustworthy. You can check for unresolved complaints against the company and if they made any late payments to creditors by checking with the better business bureau or your provincial consumer affairs office. You may even want to consider searching for online reviews written by other consumers.

Step 2: Review contract

Never agree to a contract under pressure. Always make time to understand the terms and conditions before signing the contract. If you don’t understand anything on the contract, ask for clarification. Once reviewed, make a copy for your records.

Step 3: Make sure you have a point of contact with the company

If you notice missing payments to your creditors or have any questions, you should know how to get in contact with your counsellor. 

Step 4: Take a day or two to think about it

Having the opportunity to think about the proposed offer and compare it to other offers will allow you to make the best possible decision for your financial health. 

Step 5: Make sure you have the option to change your mind within a short period of time

Often times we realize our mistakes after it’s “too late”. Asking your advisor to extend you the ability to retract yourself from the program after accepting the offer is essential to avoiding any financial mistakes. 

How to Protect Yourself From Debt Relief Fraud

What are the characteristics of a trustworthy debt relief company?

  • Consultants with up-to-date certification
  • Free first consultation
  • Real solutions that are actionable 
  • A good BBB profile 

What are some red flags to look out for?

  • Lawsuits and complaints
  • Many bad reviews/ no reviews 
  • Upfront payment
    • Most credit counselling agencies will not ask for an upfront fee.  
  • The guarantee that your creditors will forgive what you owe
  • Does it seem too good to be true

Debt Relief FAQs

Will seeking counselling affect my credit score?

No. Seeking advice and information regarding your debt problems will have no effect on your credit score. However, if you file for a consumer proposal, bankruptcy, or enter into a debt management program, it will affect your credit report accordingly. 

Will my creditors continue to contact me?

Depending on the debt relief option you choose, a creditor may or may not be legally allowed to contact you. Here is a quick overview:

Debt Relief OptionCan your creditor contact you?
CounsellingYour creditors won’t know
Debt consolidation loanYes
Debt consolidation programNo
Debt settlement programYes
Consumer proposalNo
Bankruptcy No

Does the Canadian Government offer debt relief services?

The government of Canada does not offer any specific debt relief programs or products. To learn more about why this is, check out this article

What is the difference between unsecured and secured debt?

Secured debt is backed by collateral in the form of an asset, typically a vehicle or house. Collateral lessens the risk for the lender and sometimes allows a borrower to gain access to a larger loan or a lower interest rate. In the event that a borrower defaults on a secured loan, the lender has the right to seize the assets to recoup any losses. 

Unsecured debt, on the other hand, does not require any form of collateral or security. 

What is insolvency? 

Insolvency is the state of being unable to repay your debt. A borrower who is insolvent typically must seek professional help to deal with their debt issues. 

What is re-aged debt?

If you owe money, your lenders have a certain period of time to take legal action against you. This period is called the statute of limitations which varies by province. After this period, lenders cannot pursue you to repay the debt, unless you reset the statute of limitations.


Balance TransferA balance transfer is a process of transferring current debt owed to one lender to another lender. Balance transfers are most commonly used in relation to credit card debt. The motivation to complete a balance transfer is to get a lower interest rate on outstanding debt.
BankruptcyWhen an individual is bankrupt, they are unable to pay their debts to creditors. Declaring bankruptcy is a legal process that involves handing over the bankrupt individual’s finances to a trustee.
Bankruptcy and Insolvency Act (BIA)A legal, federal act that protects the rights of Canadian individuals who declare bankruptcy. The act also defines the process to follow when bankruptcy occurs. More specifically, the roles that creditors, trustees, and individuals take on during a bankruptcy proceeding in addition to specific conditions in which bankruptcy can be granted.
Collection AgencyA third party hired by a creditor to collect outstanding debts from a borrower. A collection agency is usually hired after the creditor has made various attempts to collect the debt from the borrower on their own without success. Collection agencies tend to be more aggressive with their actions to collect debts.
CollectionsIf a creditor has been trying to collect a borrower’s debt without success, they may sell the debt to a collection agency. When this happens, the borrower’s account is classified as “in collections”. Any type of debt can go into collections including library fees, medical fees and credit card debt. Accounts in collections can negatively impact your credit score and report in the long term.
Consumer ProposalA formal offer proposed by the borrower to the creditor to resolve owed debts. Consumer proposals may request that the borrower pay a portion of the owed balance that is considered to be a full payment or extending the due date of the debt. These tactics can be used exclusively or in conjunction along with other negotiation methods. The creditor can either accept or deny the proposal.
CounsellorSomeone who is trained to provide guidance on personal, social or psychological issues. In relation to finances, counsellors help people learn how to manage their finances appropriately and make informed financial decisions.
Credit CounsellingA professional advisory service that helps individuals create a plan to repay their debt and improve their credit. Credit counselling agencies are typically not-for-profit in Canada, sometimes even a public service. For-profit credit counselling agencies exist in Canada as well.
Credit RiskThe level of risk associated with a borrower defaulting on debt repayment. If the risk of the borrower defaulting is high, then credit risk is high, and vice versa.
DebtAmount of money an individual has borrowed (from lenders and credit card companies) and is in the process of repaying.
Debt ConsolidationThe process of rolling over multiple debts into one, single loan or repayment plan. The reason why individuals consolidate debt is to get a lower overall interest rate and to focus on one monthly payment as opposed to many.
Debt Management ProgramA type of debt consolidation program that utilizes the services of a credit counselling agency to ensure an ideal repayment plan. Usually, a debt management program will help you achieve a lower monthly payment and more timely payments to lenders.
Debt SettlementThe process of paying an agency to negotiate your debts with creditors. The goal is to reduce the total amount you owe that will be seen as full payment. Debt settlement can help you reduce the amount you owe, but it can also hurt your credit score because creditors often don’t want to negotiate unless there have been many missed payments or collection records indicate that you can’t repay your debt.
DefaultFailing to make payments toward your debt for a lengthy period of time. Lenders have their own individual ways of classifying default, it may be as little as 60 days or as long as a year. Defaulting on debt can impact your credit negatively, especially if the defaulted account is sent to collections.
DefermentThe act of pushing something off to a later time. In terms of finances, this means paying a debt later than when it’s due or creating an arrangement where the customer receives the product or service now but pays later.
Discharged BankruptcyThe act of releasing a bankrupt individual from all or most of his or her debts. Sometimes not all debt is included in a bankruptcy, these debts would not be forgiven as a result of a discharge. For example, alimony, child support, and certain student loans cannot be discharged.
Financial AdvisorSomeone who is employed to provide financial services or guidance on financial issues to their clients.
FraudIntentional actions that are wrongful or criminal in nature that result in financial or personal gain for the individual who performed the actions.
Garnishment/GarnishIf you owe debts that you are not repaying, your lender can request a court order that has the power to remove funds directly from your bank account to pay off the owed debt. The name of this court order is a garnishment. There are restrictions as to how much can be garnished from your wages.
Grace PeriodA set, specific period of time after a due date when a payment can be made without consequences.
GuarantorIn the event that a borrower defaults, a guarantor is a person who agrees to repay the debt on the borrower’s behalf.
Identity TheftThe fraudulent act of obtaining another person’s private identification information and using it for financial or personal gain.
Licensed Insolvency Trustee (LIT)An individual who is licensed by the Superintendent of Bankruptcy in Canada and is authorized to administer consumer proposals, bankruptcies and manage assets held in a trust. Their profession involves helping and educating people who struggle with debt problems.
LienA legal claim on the property of an individual to ensure that debt will be repaid. For example, a lien is placed on a vehicle that is being financed and will only be removed once the loan has been paid off in full.
Long-Term DebtDebt that must be repaid over a period of twelve months or longer.
Lump-Sum PaymentA large, singular payment made at a specific point in time as opposed to numerous small payments spread out over various points in time.
Minimum PaymentThe lowest amount of money you are required to pay towards a credit card or other debt by a specific date to avoid a particular penalty.
OverdraftA negative bank account balance caused by withdrawing more money than what is in the account.
Payment PeriodThe period of time over which a borrower is obligated to make a payment. Payment periods could be weekly, bi-weekly or monthly, sometimes even longer.
RepossessionIf you owe money for a loan that has collateral and you default on the loan, the creditor can claim the collateral through the process of repossession. The repossessed collateral is sold and used to cover the owed amount of the loan. Assets that are commonly repossessed are cars, houses, equipment, and boats.
Right Of OffsetA legal right held by banks to seize deposited funds from a chequing or savings account to repay an owed amount that is in default.
Short-Term DebtDebt that must be repaid in under twelve months.
Snowball Repayment MethodA debt repayment strategy designed to motivate individuals to tackle repaying multiple debts. The strategy involves repaying the lowest debt amount first, then the next lowest debt amount, then working up to pay the highest amounts one by one. The idea is that individuals will be motivated to continue paying down their debt because there are many successes in the early stages of this plan. The drawback of the repayment strategy is that it is not the most cost-effective strategy.
Statute of LimitationsA law that dictates the maximum amount of time all parties in relation to a particular case have to take legal action. After that period of time passes, legal action cannot be taken, unless under special circumstances. Each crime, whether civil or criminal, has a different set statute of limitations.
Caitlin Wood Priyanka Correia Lisa Rennie Bryan Daly Cris Ravazzano Margaret Johnson Kale Havervold Liz Enriquez Sean Cooper Veronica Ott Corrina Murdoch Chrissy Kapralos

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