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Understanding the difference between certain types of consumer debt is a necessity for managing your finances successfully. With this knowledge, you will also be able to pay off your debts more efficiently and use your credit more strategically.

What Is Consumer Debt?

Consumer debt is money that is owed to a lender or creditor as the result of purchasing items. Items like clothing and electronics, that are consumable and that do not appreciate in value over time. 

Credit card debt, personal loans, car loans, mortgages, student loans and payday loans are all examples of consumer debt.

Average Amount Of Consumer Debt In Canada

Household debt in Canada is one of the highest among all G7 nations. Right now, Canadian household debt makes up 187% of disposable income. This means Canadians owe $1.87 for every dollar of disposable income they have. 

Consumer Debt Trends In Canada

Consumer Debt Trends In Canada

Thanks to soaring inflation and its direct effect on the cost of just about everything, consumer debt in Canada has reached new heights. 

Over the Q3 of 2023, total debt among Canadians hit a record $2.4 trillion, up 2.9% from the same quarter last year, according to Equifax

Even with the threat of a recession looming, Canadians continue to incur more debt. The reason for this is to offset the rising cost of living, leaving many Canadians to use credit to help handle their financial obligations. 

Here are a few current noteworthy trends of consumer debt among Canadians:

  • Average non-mortgage debt Canadians hold is $21,013
  • Average non-mortgage delinquencies (1.2%) went up by 29.2%
  • Average monthly mortgage payment on new loans: up 10.4%

Types Of Consumer Debt In Canada

Several types of consumer debt contribute to overall debt among Canadians, including the following:

Personal Loan Debt 

A personal loan involves borrowing a lump sum of money that you can use for a variety of purposes. You can use the funds to buy a car, pay for a wedding, or consolidate debt, among other things. 

You’ll make installment payments according to your loan agreement’s payment schedule. Every payment will include a principal portion and an interest portion. Payments will be made regularly over a specified loan term until the loan is paid off in full.

Credit Card Debt

Credit card debt is a revolving account that does not have a specific loan term. You’ll be approved for a specific credit limit within which you can spend on credit. 

You can pay back as little or as much as what you’ve borrowed, but any outstanding will be charged interest. To keep your account in good standing, you’ll need to make a minimum payment on your credit account every billing cycle, if you carry a balance.

Credit card debt is unsecured, which means there is no physical asset to back the loan. This makes credit card debt riskier for the credit card provider, which is why interest on credit card debt tends to be higher than secured debt. 

Mortgage Debt

A mortgage is a type of secured loan, which means it is backed by an asset of value. In this case, the collateral is your house. Like a personal loan, a mortgage is repaid over a set loan term via regular installment payments that include both a principal and an interest portion. 

Interest rates on mortgages tend to be lower than other types of loans because of the collateral involved. However, it’s important to note that if you fail to keep up with your mortgage payments, you will be at risk of having your home repossessed by the lender. 

Car Loan Debt

An auto loan is designed specifically to finance the purchase of a vehicle. Like a mortgage, an auto loan is a secured loan that is backed by collateral and repaid in regular installments over a set loan term.  

How To Pay Off Your Consumer Debt In Canada

It can be tough to juggle all your bills and make sure they’re being paid on time every month. Paying down much of your debt can help alleviate your financial stresses and free up more money to be used in other ways.  

If you’re having trouble keeping up with your consumer debt, try some of these strategies and programs:

Snowball Method vs. Avalanche Method 

Two of the more common debt repayment strategies are the snowball method and the avalanche method. They both involve focusing on one debt at a time until all your debt is paid off, but they each take a different approach:

Snowball Method

This debt repayment strategy focuses on paying down your smallest balance first, then moving on to larger ones. The idea is to quickly build momentum since it will take less time to pay off smaller debt compared to larger balances. 

Once that initial debt is fully repaid, you can use the funds that otherwise would have been dedicated to paying off your first debt to pay down the next-smallest balance. You’ll repeat this cycle until all of your outstanding debt is paid off. 

Avalanche Method 

This method involves focusing on your highest interest balances first. You’ll put as much money as possible toward your most expensive debt while making minimum payments on all other debts to keep those accounts in good standing.

Once that balance has been repaid, you take the money that you would have used for those payments and put it toward your next-highest-interest debt. Continue this cycle until all your debt is fully repaid. 

This is a more cost-effective debt repayment method compared to the snowball method, as it will save you a lot more money in interest and get you out of debt faster.  

Debt Consolidation

An effective way to pay down your debt quickly is to take out a debt consolidation loan and use the funds to pay off all your outstanding balances. This is a great option if you’re overburdened by your debt and have difficulties managing several bill payments every month. With debt consolidation, you can turn multiple bills into a single, affordable, easy-to-manage payment. 

This option makes most sense if you’re able to qualify for a loan at a rate that is lower than your highest-interest debt. This will help save you money over the long run.  

However, do note, that qualifying for a debt consolidation loan with a low rate can be difficult if you have bad credit. If you don’t know what your credit score is, you can check it for free using Loans Canada Compare Hub

Balance Transfer

Another way to consolidate your outstanding debt is to apply for a balance transfer credit card with a 0% or low-interest promotional period. You can then transfer your high-interest debts onto one credit card and pay off your debt within this introductory period.

Just make sure that you understand your credit limit, the balance transfer fee and how much time you have before the introductory period ends. Ideally, you should pay off as much of your debt as possible before the regular interest rate on your card kicks in. 

Speak To A Credit Counsellor 

If you’re having trouble coming up with an effective and manageable way to deal with your debt on your own, consider speaking with a credit counsellor. These experts can review your finances and help you come up with a plan to tackle your debt, such as the following:

Creating A Budget

A budget is a spending plan based on your income and expenses. It lays out all your expenses so you understand exactly how much you spend every month. Then, you can compare that figure to your income and make any necessary changes to your habits to ensure you don’t spend more than you earn.

Debt Management Program

A debt management plan is administered by a credit counselling service to help you pay off your debt. It involves consolidating your debt into a single and affordable payment plan and reduces or eliminates interest. This will help you save money and pay off your debt faster. 

Consumer Proposal

A consumer proposal is a legal arrangement between you and your creditors to pay back part of your outstanding debt. It is administered by a Licensed Insolvency Trustee (LIT) and governed under the Bankruptcy and Insolvency Act (BIA). Your LIT will propose an alternative payment arrangement with your creditors on your behalf in an effort to avoid bankruptcy.


Bankruptcy is a last resort to settling your debt. It is a legal process administered by a LIT in which you are discharged from most of your debts while ensuring that your creditors are treated as fairly as possible. Your LIT will settle your debts by paying your creditors using the proceeds of your assets. Your bankruptcy ends when you are discharged, at which point you are no longer required to pay your debts.

Bottom Line

If you’re currently struggling with consumer debt and you’re looking for debt relief solutions, you have options.  You can speak to a credit counsellor to help you find the best debt management solution for your unique situation and help you start the process of paying back your consumer debt.

Consumer Debt In Canada FAQs

What’s the difference between secured and unsecured?

The singular difference that differentiates the two is the collateral. Secured debt has collateral and unsecured debt does not.  Your mortgage and car loans are secured debts; if you don’t repay your lender they are legally able to seize whatever was used as collateral. Unsecured debts do not involve collateral. In this case,  your lender cannot seize your property or assets to recoup payment.  

What is revolving debt?  

Revolving debt is debt that does not have fixed monthly payments like a credit card or line of credit. However, these credit products do require minimum payments to keep your account in good standing. 

What kind of debts can you consolidate with a personal loan? 

With a personal debt consolidation loan, you can consolidate most debts such as payday loans, credit card debts, car loans and student loans.
Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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