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If you’re struggling with debt, you’re not alone. A recent poll by Ipsos found that nearly half of Canadians (46%) are carrying non-mortgage debt, and 48% of those people are feeling stressed about debt repayment. High interest rates, a rising cost of living, and a slow economy all contribute to the growing debt situation. If your debt is getting out of control, consider a debt relief program in Canada.

Traditional Debt Relief Programs In Canada 

The best debt relief program for you will depend on how much debt you have, if you’re still solvent (able to pay your bills), and what you qualify for. Below are some of the most common debt relief programs in Canada. 

Debt Consolidation 

Debt consolidation involves rolling up multiple debts into a single monthly payment using a debt consolidation loan or balance transfer credit card. 

When you consolidate your debt, instead of remembering to pay multiple debts with different interest rates and repayment dates, you can focus on one monthly payment.  

Ideally, you want to find a loan or balance transfer credit card with a lower interest rate than you are currently paying. This can help you to pay less money over time, and pay back your debt faster. 

To qualify for a debt consolidation loan or balance transfer credit card with a low interest rate, you’ll typically need a strong credit score. If you have a poor credit score, you may find it challenging to secure an interest rate low enough to make debt consolidation financially worthwhile. 

Debt Settlement Companies

It’s possible to hire a debt settlement company to negotiate your debt with your creditors. The debt settlement company will offer your creditor an amount of money to get rid of your debt. Often, the offer is lower than what you owe. 

If your creditor agrees, you will make a lump sum payment to your debt settlement company, and they will pay your creditors. 

Debt settlement is a voluntary process, meaning your creditors are not obligated to negotiate and can reject the offer. If the offer is rejected, you may still have to pay a fee to the settlement company. In this situation, you’re on the hook to pay your original debt, plus the fee. If your creditor agrees to settle, there is potential to save money. 

For many people, debt settlement isn’t a viable option because you need to come up with a lump sum payment. However, if you can borrow money from family or friends, it might work for you.  

Credit Counselling

In a credit counselling session, you work with a counsellor to improve your financial skills and knowledge. Your counsellor might coach you on how to make a budget and use it to pay off debt. If you’re struggling to manage credit, your counsellor can provide improvement tips. 

Many credit counsellors also offer debt management plans (DMP). In a DMP, your credit counsellor creates an informal proposal and presents it to your creditors. 

The purpose is to consolidate your debts into one monthly payment. While you typically have to pay 100% of your debt in a DMP, your creditor will request that your interest and fees be reduced or eliminated and will try to extend the time you have to repay your debt. 

If the proposal is accepted, you make payments to the credit counselling company, and they will pay your creditors. If the plan is rejected, you can work directly with your creditors to make an arrangement. 

There are often fees associated with a DMP, but you can request to reduce or eliminate them if you can’t afford to pay.     

Consumer Proposal

A consumer proposal is a legally binding debt relief program. In a proposal, you work with a Licensed Insolvency Trustee (LIT) to put together an offer to pay your creditors a percentage of your debt, increase the time you have to pay, or both. 

If your creditors accept your proposal, you have up to five years to pay back your debt with lump sum or periodic payments. If your proposal is rejected, you can make changes and resubmit, or you might consider filing for bankruptcy.  

The best way to determine if a consumer proposal is right for you is to set up a meeting with an LIT. Licensed Insolvency Trustees are the only professionals who can administer a consumer proposal proceeding. 

If you are dealing with debt collectors or your wages are being garnished, filing a proposal will stop these actions. At the end of your proposal, if you meet all of the conditions, you are legally released from the debts included in the proposal. 

Bankruptcy 

Bankruptcy is a legal process in which you are discharged from most unsecured debts. The purpose of bankruptcy is to provide Canadians who are drowning in debt with a second chance. 

To file for bankruptcy, you have to work with a LIT. Once you are declared bankrupt, you can stop making payments to your unsecured creditors, and any wage garnishment or lawsuits against you will stop.

An LIT is responsible for selling your assets to raise money to pay back your creditors. Certain assets are excluded. 

If you are successfully discharged from bankruptcy, you are legally free from your debts – with some exceptions. Debts, including alimony, child support, and court-ordered fines are not included in bankruptcy. 

To determine if bankruptcy is the right option for you, speak to a Licensed Insolvency Trustee. 

Debt Relief Programs in Canada For Tax Debt

If you’ve accumulated tax debt and are struggling to pay it off, there are a few programs that can help you find relief. 

Negotiate New Payments Terms

If you’re not able to pay your tax debt in the short term, you can look into the Canada Revenue Agency’s (CRA) payment program. Using your CRA My Account or My Business Account, you can schedule a series of payments using a pre-authorized debit (PAD) agreement. You also have the option of calling the CRA to set it up.  

The purpose of this program is to help you schedule repayments based on what you can realistically afford. 

Taxpayer Relief Program 

If you’re unable to pay your taxes due to events that are outside of your control, you can apply to the CRA’s taxpayer relief program to have your penalties and interest payments waived. 

Some of the situations that may qualify for this program include:

  • Natural disasters
  • Serious illness
  • Loss of work makes you unable to afford your payments
  • CRA processing errors 

Consumer Proposal 

Since tax debt is unsecured debt, it’s possible to include it in a consumer proposal. Using a proposal, you can reduce the total amount of debt you owe, including tax debt. You can speak with a licensed insolvency trustee to see if a consumer proposal is the best way to deal with your tax debt. 

Bankruptcy 

Tax debt is also eligible for bankruptcy and can be eliminated if you are successfully discharged. Again, it’s best to speak with an LIT to decide if bankruptcy is the right debt relief choice for you.  

Debt Relief Programs In Canada For Student Debt

If you have student debt that you can’t afford to pay back, you can consider the following debt relief programs:

Repayment Assistance Plan 

You can apply to the repayment assistance plan (RAP) or the repayment assistance plan for borrowers with disabilities (RAP-D), to reduce or eliminate your payments based on your income. 

You can apply as soon as your school debt repayments start, and you have to reapply every six months. If you’re approved the government will: 

  • Pay interest owing on the federal part of your loan that isn’t covered by your reduced payment.
  • Start to pay down the principal and interest after 60 months of RAP or 10 years after you finish school. 

In the RAP-D program, the government will:

  • Pay down the principal and interest that your reduced payments don’t cover. 

Consumer Proposal Or Bankruptcy 

You can also reduce your student loans through a consumer proposal, or eliminate them in bankruptcy, provided you’ve been out of school for more than seven years.  

Provincial Resources For Student Debt Relief 

The following table provides links to provincial student loan debt relief programs

ProvinceStudent Loan Debt Relief Program
AlbertaRepayment Assistance Plan (RAP) 
British ColumbiaLoan Forgiveness Program
Saskatchewan Student Loan Forgiveness for Nurses and Nurse Practitioners 
OntarioOntario Student Loan Rehabilitation Program (OSAP)
Prince Edward Island (PEI)PEI Student Loan Rehabilitation Program 
Nova ScotiaStudent Loan Forgiveness Program
QuebecLoan Remission Program 

Other Ways To Receive Debt Relief In Canada

Sometimes simply having the option to defer payments is enough to help you get back on track. Some banks and financial institutions may offer a payment deferral option.  

Payment Deferrals

Payment deferrals became common during Covid-19 as people were struggling to keep up with their payments. 

A payment deferral allows you to pause your payments or reduce the frequency of your payments for a specified time. You still have to repay your debts and you will continue to accumulate interest but your bank might agree to a different payment schedule. If you’re interested in payment deferral, contact your bank or financial institution for more information.  

Negotiate A New Payment Plan 

You can also try negotiating a new payment plan with your credit card company. Typically, you’re more likely to find success if your credit card is in good standing. 

Explain your financial situation and see if your provider is willing to reduce your interest rate, remove fees, or adjust your payment schedule. Remember, your credit card provider wants you to pay your bills, so negotiating is usually in their best interest. 

Bottom Line

Dealing with significant amounts of debt is stressful, especially if you’re trying to do it alone. If you’re feeling overwhelmed by the debt repayment process, consider reaching out for help. There are several debt relief programs in Canada that you can use to regain your financial footing. 

Debt Relief FAQs

Can I be cleared of secured debts?

Secured debts are not eligible for debt relief programs such as a consumer proposal or bankruptcy. Secured debts are backed by an asset such as your house or car to reduce the risk to the lender. If you default on your debt, the lender can sell your assets and regain some of the money. 

Can I keep my assets in a consumer proposal?

Yes, you can keep your assets in a consumer proposal. This is one of the main benefits of filing for a consumer proposal instead of bankruptcy. 

What happens if you default on a loan?

If you default on a loan, your credit score will likely drop, making it harder to obtain credit in the future. You might also get charged late fees or have collectors come after you. If you default on a secured loan, you risk losing your collateral.
Jessica Martel avatar on Loans Canada
Jessica Martel

Jessica is a freelance writer, professional researcher, and mother of two rambunctious little boys. She specializes in personal finance, women and money, and financial literacy. Jessica is fascinated by the psychology of money and what drives people to make important financial decisions. She holds a Master's of Science degree in Cognitive Research Psychology and Bachelor's degrees in Communications, and Psychology. Her work has been published on Investopedia, The Balance, Money Under 30, Time.com, Seeking Alpha, Consumer Affairs, and more.

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