Debt Management in Canada
Debt Management in Canada: 2025 Guide to Debt Management Plans & Alternatives
Struggling with credit card debt, high interest, or multiple payments? This page explains everything you need to know about debt management in Canada, including how Debt Management Plans (DMPs) work, who qualifies, what debts can be included, and how debt management compares to consumer proposals and bankruptcy.
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What Is Debt Management in Canada?
Debt management refers to strategies and programs designed to help you regain control of your finances, reduce interest, and pay down your unsecured debts in an organized way.
In Canada, the most common structured form of debt management is a Debt Management Plan (DMP), offered by a non-profit credit counselling agency. A DMP consolidates your payments and usually reduces or eliminates interest charges, helping you become debt-free in 3–5 years.
The Financial Consumer Agency of Canada (FCAC) provides helpful tools and education to understand when debt management is appropriate.
How Does a Debt Management Plan Work?
A Debt Management Plan is a voluntary repayment program administered by a non-profit credit counselling agency. It helps you simplify and reduce your debt payments.
How a DMP Works:
- You meet with a certified credit counsellor to review your finances.
- The counsellor negotiates with your creditors for reduced or eliminated interest.
- You make one monthly payment to the agency.
- The agency distributes funds to your creditors each month.
- You complete the program in approximately 36–60 months.
What Debts Can Be Included in a Debt Management Plan?
DMPs can help consolidate and reduce interest on common unsecured debts, including:
- Credit cards
- Lines of credit
- Store cards
- Personal loans
- Collection accounts
- Overdrafts
- Some payday loans
Debts NOT typically included:
- CRA tax debt
- Student loans (depending on lender)
- Secured loans (mortgages, car loans)
- Legal judgments or court-ordered debts
If you need help with CRA debt or court actions, a consumer proposal or bankruptcy may be more suitable.
Pros and Cons of Debt Management
Pros
- One monthly payment instead of many.
- Lower interest rates (often 0–10%).
- No legal proceeding required.
- Helps avoid bankruptcy.
- Provides budgeting and financial counselling support.
Cons
- You must repay 100% of the debt you owe.
- Credit rating gets an R7 notation.
- CRA debt cannot be included.
- Not legally binding — creditors may choose not to participate.
- Monthly payments may still be too high if income is limited.
Debt Management vs Consumer Proposal vs Bankruptcy
Not sure if a DMP is right for you? Here’s a simple comparison:
| Feature | Debt Management Plan | Consumer Proposal | Bankruptcy |
|---|---|---|---|
| Debt Reduction | No – repay 100% | Yes – repay part | Yes – eliminate most debts |
| Interest | Often reduced/eliminated | No interest | No interest |
| Legal Protection | No | Yes – stops collections | Yes – strongest protection |
| Credit Impact | R7 | R7 | R9 |
| Timeline | 3–5 years | Up to 5 years | 9–21 months (typical) |
Learn more about alternatives:
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Should I Choose a Debt Management Plan?
A Debt Management Plan is a good option if:
- You have steady income.
- You can afford to repay your debts with lower interest.
- You do not need legal protection from creditors.
- You want to avoid bankruptcy or a consumer proposal.
You may need a consumer proposal instead if:
- You cannot afford to repay all your debt.
- You owe CRA income tax or government debt.
- You are facing wage garnishments or legal action.
- You want legally binding protection.
How to Avoid Debt Management Scams in Canada
Some companies advertise “government debt programs” that are misleading or predatory.
The Government of Canada warns consumers about these practices here:
Government of Canada – Beware of Debt Relief Scams
Warning Signs:
- Upfront fees before any service is provided.
- Guarantees to eliminate debt instantly.
- Advice to stop paying creditors without a plan.
- Claiming to offer legal services without being a Licensed Insolvency Trustee.
Get Professional Debt Help Today
Our Licensed Insolvency Trustees will assess your finances, explain every debt management option, and help you choose the most effective solution for your situation.
Frequently Asked Questions About Debt Management
Is a debt management plan the same as debt consolidation?
No. Debt consolidation is a new loan. A DMP combines your payments without taking a loan.
Does a debt management plan affect my credit?
Yes — usually an R7 rating while enrolled. However, it is often better than continuing missed payments.
Can CRA debt be included in a DMP?
No. CRA does not participate in DMPs. A consumer proposal or bankruptcy may be required.
How long does a debt management plan last?
Typically 3 to 5 years depending on your income and debt level.
Is a DMP legally binding?
No. Creditors participate voluntarily. If you need legal protection, consider a consumer proposal.
Discuss options to get out of debt with a trained & licensed debt relief professional.
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