Debt Relief in Canada: 2025 Guide to Getting Out of Debt

What Is Debt Relief in Canada?

Debt relief in Canada covers both informal strategies (like budgeting, negotiating directly with creditors, and consolidating debt) and formal legal solutions (like consumer proposals and bankruptcies). The right approach depends on how serious your debt problem is and how much you can realistically repay.

Government resources such as the Financial Consumer Agency of Canada (FCAC) explain the main options for managing debt, including consolidation and working with credit counsellors. 

Types of Debt Relief Options in Canada

Below is a practical overview of the major debt relief options available to Canadians, from least to most drastic.

1. Budgeting, Self-Help & Informal Negotiations

For smaller debt problems, sometimes you just need a structured plan.

• Creating a detailed budget and cutting non-essential expenses.
• Calling creditors to ask for lower interest rates or temporary payment relief.
• Prioritizing high-interest debt first.

The FCAC offers tools and education on managing debt, budgeting and warning signs of trouble.

2. Debt Consolidation Loans

Debt consolidation means combining multiple unsecured debts into one new loan, ideally at a lower interest rate and with a clear repayment schedule. Learn more in our dedicated guide: Debt Consolidation in Canada.

Pros:

• One monthly payment instead of many.
• Potentially lower interest rate and faster payoff.
• No public record; can be good if your credit rating is still strong.

Cons:

• You usually need fair to good credit to qualify.
• Consolidation doesn’t reduce the total debt—only restructures it.
• If you keep using credit cards, your debt can grow again.

3. Non-Profit Credit Counselling & Debt Management Plans

Non-profit credit counselling agencies review your budget, help you understand your options, and may offer a Debt Management Plan (DMP).

• You make one monthly payment to the agency, which distributes it to your creditors.
• Creditors often reduce or eliminate interest, making it easier to pay off debt in 3–5 years.

4. Consumer Proposals (Legal Debt Settlement)

A consumer proposal is a formal debt relief solution under federal law where you offer to repay a portion of what you owe over up to five years, with no interest. Only a Licensed Insolvency Trustee can file a consumer proposal for you.

Key points:

• Includes most unsecured debts: credit cards, lines of credit, tax debt, payday loans and more.
• Protects you from collection calls, wage garnishments and lawsuits.
• Lets you keep your assets (home equity, car, investments) provided you keep payments current.
• Shows as an R7 rating on your credit report; it is removed a few years after completion.

For a deep dive, see our full guide: Consumer Proposal in Canada.

5. Bankruptcy (Last-Resort Debt Relief)

Personal bankruptcy is usually considered when your income is limited, your debts are very high, and there’s no realistic way to repay them. Bankruptcy wipes out most unsecured debts after you complete duties and receive a discharge. It is supervised by the OSB and administered by a Licensed Insolvency Trustee.

Highlights:

• Immediate protection from creditors and collection actions.
• Most unsecured debts are eliminated at discharge.
• Some assets are protected by provincial exemptions; others may need to be turned over or “bought back.”
• Comes with an R9 rating (strongest negative rating) and appears on your credit report for several years after discharge.

Learn more in our dedicated guide: Personal Bankruptcy in Canada.

Debt Relief Options Compared

Benefits and Drawbacks of Debt Relief Programs

Benefits

• Lower monthly payments and a clear end date.
• Reduced or eliminated interest, saving thousands of dollars.
• Protection from creditors and collection agencies in formal solutions.
• Professional guidance from Licensed Insolvency Trustees or accredited credit counsellors.
• Opportunity to rebuild your credit once the plan is completed.

Drawbacks

• Some options have significant credit score impact.
• Certain assets or lines of credit may be cancelled or reduced.
• Formal solutions become part of your public insolvency record.
• Incomplete or missed payments can cause a proposal or DMP to fail.

How to Choose the Right Debt Relief Option in Canada

Step 1: Take an Honest Snapshot of Your Finances

List all debts, interest rates, minimum payments, and your monthly budget. Free tools from the Financial Consumer Agency of Canada and its Financial Goal Calculator can help you see the big picture. 

Step 2: Learn About Each Option

Read trusted sources, including:

• This page and our in-depth guides on debt consolidation, consumer proposals, and bankruptcy.
• The OSB’s information for consumers on insolvency options.
• FCAC articles on getting help with debt and working with credit counsellors. 

Step 3: Speak With a Licensed Insolvency Trustee

A Licensed Insolvency Trustee is the only professional in Canada legally authorized to file a consumer proposal or bankruptcy on your behalf. They are officers of the court and must explain all your options—not just bankruptcy—including consolidation, credit counselling and proposals.

Use our Find a Local Trustee tool to connect with a debt relief expert in your province.

Step 4: Compare the Pros and Cons for Your Situation

Ask yourself:

• Can I realistically repay my debts in full with reduced interest?
• Do I need a legal stay of proceedings to stop garnishments or lawsuits?
• Do I have assets I want to protect (home equity, investments, vehicle)?
• How important is a faster recovery for my credit rating?

Step 5: Commit to a Plan and Follow Through

Once you and your advisor choose a plan—whether a DMP, consumer proposal or bankruptcy—commit to it fully. Build a simple budget, set up automatic payments, and use any extra income (tax refunds, bonuses) to get out of debt faster.

How to Avoid Debt Relief Scams in Canada

Unfortunately, many Canadians are targeted by unlicensed “debt relief” consultants who charge large upfront fees and then refer people to the same options they could have accessed for free through a Licensed Insolvency Trustee or non-profit agency.

The OSB and FCAC have issued consumer alerts warning about debt-relief scams and misleading “credit repair” services.

Red Flags to Watch For

• High upfront fees before any real service is provided.
• Pressure to sign quickly or promises to “erase your debt overnight.”
• Claims they can file a consumer proposal or bankruptcy even though they are not Licensed Insolvency Trustees.
• Requests to stop paying your creditors but no written plan from a regulated professional.

Government-run pages like “Struggling with debt? Beware of debt-relief scams” explain how these scams work and how to protect yourself.

When in doubt, check directly with:

• The Office of the Superintendent of Bankruptcy to confirm your advisor is a Licensed Insolvency Trustee; and
• The Financial Consumer Agency of Canada for guidance on legitimate debt help and complaint processes.