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If there is one issue that most Canadians deal with at least once in their lives, it’s debt. It can be difficult to keep your head above the crest of an ever-rising tide of bills, credit card payments, and rent payments, but it doesn’t have to be that way. 

Regardless of how you got into debt, with a little work and changes to your spending habits, it’s possible for, or anyone, to become debt-free.

How To Get Out Of Debt In Canada – Summary

Options To Get Out Of Debt– Transfer your debt to a balance transfer card.
– Consolidate your debt.
– Speak to your creditor to defer a payment or create a new payment plan.
Tips To Control Your Debt– Track your spending and create a budget.
– Use coupons, freebies, discounts and other tools to keep costs low.
Extreme Debt Relief Options– Debt Management Program
– Consumer Proposal
– Bankruptcy

How To Get Out Of Debt In Canada, Especially High-Interest Debt 

Carrying a lot of high-interest debt can be difficult to climb out of, especially if the interest portion continues to grow. In this case, you may find yourself making minimum payments more often than not. This can cause your outstanding principal debt to increase, as much of your payments go toward covering interest.

This may call for a revamping of your finances. Luckily, there are a few effective ways to get out of debt, especially if your debt comes with very high-interest rates.

Restructure Your Debt Payments 

Depending on the type of debt you’re carrying, such as credit card debt, you may be paying a lot more interest than necessary. In this case, restructuring your debt can reduce your interest payments, which can help save you money and use it to put toward paying down your debt. Here are some ways to restructure your debt:

Balance Transfer Credit Cards 

A balance transfer credit card offers low or no interest on the outstanding balance for a specific amount of time. If you carry a high balance on a high-rate credit card, you can transfer that balance to a low- or no-interest balance transfer credit card. Then, you can pay down your balance without accumulating interest, as long as you repay the balance before the promotional period expires.

Debt Consolidation Loans 

If you have several loans or credit cards, particularly those with high interest, you can pay them all down with a debt consolidation loan. By doing so, you’ll be left with one bill payment instead of many, which will make bill management much easier. Further, you can save a ton of money in interest by swapping your high-interest debt for a single lower-rate debt consolidation loan.

Home Equity Loan/HELOC

If you own a home and have accumulated at least 20% in equity, you may qualify for a home equity loan or HELOC. These options allow you to borrow against the equity in your home. Since your home equity secures the financing, you may qualify for a low-interest rate and use the funds to consolidate all other debt you may be carrying. 

Personal Loan For Debt Consolidation

If you are in a situation where you owe money to various sources, consider a personal loan for debt consolidation (a.k.a. a debt consolidation loan). A debt consolidation loan will combine all your unsecured debt into one large loan by paying off your existing debt with the new money. By consolidating your debt into one loan, you will only be managing one balance which is much less stressful.

Note, that a debt consolidation loan is only beneficial if you can secure a low interest rate and get a term that makes your payments affordable. 

Speak To Your Creditor

If you know you’re going to miss a payment, contact your creditors, don’t hide from them. Be honest with them and explain why you are having trouble making your payments. The majority of the time they will be willing to work with you and modify your payment plan or defer a payment as long as you make an honest effort to pay.

What Is High-Interest Consumer Debt?

Consumer debt is defined as a debt resulting from the purchase of goods that are consumable but do not appreciate. Clothing and food are two examples. More often than not, consumer debt is high in interest which is where the term high-interest consumer debt comes from. Usually, people tend to rack up consumer debt through credit cards, payday loans, or other forms of high-interest lending used for consumption purposes, as opposed to investment or business purposes.

Generally, high-interest consumer debt is a result of an emergency, unexpected expenses, or bad spending habits. Unfortunately, we cannot always control what happens in our lives, an illness or loss of a job can cause someone to accumulate consumer debt. In other cases, high-interest consumer debt is the result of poor spending habits.

Implement These Strategies To Pay Down High-Interest Loan Debt

If you have high-interest consumer debt, there are ways to alter and improve your spending habits to pay down your debt and prevent debt from building up again in the future. 

Track Your Spending

It’s hard to get where you want to go if you don’t know where you’re at. That is why the first thing you need to do is start keeping track of how and where you spend your money. Those expensive coffees you treat yourself to every morning on the way to work may seem like a small expense, but figure out what they cost you over a month and you might be surprised. Start by keeping track of all the things you buy in one day, this is a great way to ease into creating a budget for yourself.

How To Get Out Of Debt In Canada: Budget – Have To Have, Wants, And Debts

Once you know where all your money is going, divide all your expenses up into those three categories and then be brutally honest with yourself. 

  • 50% Have To Have – Expenses in this category include essentials such as rent, utilities, and other non-negotiables. 
  • 30% Wants –  These expenses include non-essential costs such as nights out, trips, and other things you may want but don’t need. 
  • 20% Debts – This portion of your income should be dedicated to paying down your debts.  

Budgeting can be a pain, especially when you have to cut out unnecessary, but often fun expenses that you’ll surely miss. But, a budget is a plan for your finances and future. Eliminate your wants and take a second look to see if you can find cheaper alternatives. 

Resources To Help You Cut Costs And Get Out Of Debt In Canada

Downgrade Your Car

Aside from mortgages, car loans are one of the biggest sources of debt. People tend to purchase cars that are outside of their price range and end up paying hundreds of dollars every month. By downgrading your car, you will not only reduce expensive monthly payments, but you can potentially get some money back to help pay down your debt.

Actions That Can Help You Pay Down High-Interest Debt In Canada 

There are certain actions you can take that can help you pay down your high-interest debt more effectively. 

Paying More Than Minimum Payment

Making a minimum payment may seem like you’re bettering your debt situation, but in reality, your interest charges are accumulating faster than you can pay your debt. The larger the payments you make, the quicker you’ll reduce what you owe and how much interest you’re accumulating.

Seeking Professional Help

If you are struggling to manage your finances and debt on your own, speak to a credit counselling professional. They have several debt relief options available to assist you. 

Extreme Options On How To Get Out Of Debt In Canada

If your debt has become too unmanageable, you may need to consider a more drastic repayment or relief option. In Canada, consumers have several more extreme options to choose from. 

Debt Consolidation Programs

Similarly to debt consolidation loans, debt consolidation programs (sometimes referred to as debt management programs) combine your unsecured debt into one easy-to-manage monthly payment. Credit card debt, payday loans, overdue bills, and unsecured lines of credit are all examples of unsecured debt.

Once you have enrolled in a debt consolidation program, you will work with a counsellor to create a plan of action. With your counsellor, you will come up with a reasonable monthly budget and a complete schedule for how you will repay your creditors. Each month you will send money to your counsellor and they will pay creditors on your behalf.

These programs are ideal for people who don’t have ample secured debt and are seeking confidential support. This service reduces harassment and stress from creditors as well as avoiding liquidation of your assets. You are still required to manage your spending habits with these programs and there are often associated service fees.

Debt Settlement

When you choose debt settlement you will work with a debt settlor who will collect monthly payments from you. Once the debt settlor has collected enough money, they will contact your creditors to negotiate a lower, but immediate, payment of your debt. The idea is that creditors want to get some form of payment now instead of nothing or having to wait.

Typically, the debt settlor will take a flat fee or percentage of the debt as payment for their services. Debt settlement can be risky because you cease paying the creditors directly until the negotiations start. If you are only a few months behind on payments, debt settlement can negatively impact your credit score since you’re stopping payment entirely.

On the other hand, if you are already way past being a couple of months behind on payments or your accounts have been sent to collections, debt settlement may work for you.

Consumer Proposal

If your debt has reached a point where it is impossible to deal with and you’re facing legal consequences. A consumer proposal could be the solution you’ve been looking for. That being said, a consumer proposal is an extreme option that will have long-lasting effects on your credit score. Be sure to seriously consider if this option is right for you before moving forward.

With a consumer proposal, you’ll be working with a Licensed Insolvency Trustee. They will create a legally binding repayment of debt proposal between you and your creditors. If your consumer proposal is accepted, you will be eligible for a reduced balance and interest rate. In addition, a stay of proceedings will be filed on your behalf, this means that lenders are required to stop contacting you to collect.


If you are in a situation where your debt is completely unmanageable, your only choice may be to file for bankruptcy. Bankruptcy is the legal term for when an individual or business cannot repay their outstanding debts. It is important to note that filing for bankruptcy should be a last resort as it is a drastic choice that has adverse, long-term effects on your credit.

As with a consumer proposal, you will be working with a Licensed Insolvency Trustee who will create an agreement freeing you from debt including a stay of proceedings. 

Bottom Line On How To Get Out Of Debt In Canada

It can seem like a daunting task to get out of debt, but it can be done. In the process, you will develop healthy spending habits that will serve you for a lifetime. Best of all is the feeling of accomplishment as you see your debt get smaller and smaller and the freedom you will enjoy living a life free of financial strain. If you’re interested in seeking professional help for your debt repayment issues, Loans Canada can match you with the right service provider for your needs. 

High-Interest Loans FAQs

What is the maximum interest rate for a loan in Canada?

Under the Criminal Code, the criminal rate of interest is currently set at 60% (APY), which applies to most loans, except payday loans. 

What is a payday loan?

A payday loan is a small, short-term loan with high-interest rates and fees. Loan amounts are usually no more than $1,500. Funds must be repaid in one payment by the borrower’s next payday, which can be no more than 62 days.  

Can I pay off my personal loan early?

Yes, you can pay off a personal loan before the term due date. However, you may be charged an early prepayment penalty fee, depending on the lender and the terms of your loan agreement. Before paying off your loan early, make sure to review your loan contract to see if any clauses involve penalties for early loan repayment.

How much debt is too much debt?

According to the Canada Mortgage and Housing Corporation (CMHC), your Total Debt Service (TDS) ratio should not be any more than 44%. Your TDS refers to the percentage of your monthly income that goes toward paying your housing costs and all other debts. Anything over 44% would be considered too high.

Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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