Debt consolidation means combining multiple debts into a single payment — ideally at a lower interest rate or with a smaller monthly obligation. In Canada, there are several ways to consolidate debt, ranging from a simple bank loan to a formal legal proceeding. The right approach depends entirely on your credit score, income, debt level, and whether you're able to repay the full amount.
A debt consolidation loan is a personal loan used to pay off multiple existing debts, leaving you with one monthly payment at (ideally) a lower interest rate. You can get these from banks, credit unions, and online lenders.
Best for: People with good to decent credit (roughly 650+) who can qualify for a rate lower than their existing debts.
Limitations: If your credit is damaged or your debt is very high, you may not qualify — or you may qualify only at rates that offer little benefit. A consolidation loan does not reduce the amount you owe.
Homeowners with equity can use a home equity line of credit (HELOC) or refinance their mortgage to consolidate debt at mortgage rates. This can dramatically reduce your interest cost.
Risk: You're converting unsecured debt into debt secured by your home. If you cannot make payments, you risk foreclosure. This approach requires discipline — many Canadians pay off credit cards using home equity, then run the cards back up, ending up in a worse position.
A Debt Management Plan (DMP) is offered by non-profit credit counselling agencies. The agency negotiates with creditors to reduce or eliminate interest on your unsecured debts and combines your payments into one monthly amount paid to the agency, which distributes to creditors.
Best for: People who can afford to repay their full debt but need interest relief and organizational help.
Limitation: You repay 100% of what you owe. Creditor participation is voluntary — some creditors may not accept the terms.
A consumer proposal is a formal legal proceeding under the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee. You offer to repay a portion of your debt (often 20–50%) over up to five years. Interest stops immediately. All unsecured creditors are legally bound if the majority accept.
Best for: People who cannot repay their full debt and want to avoid bankruptcy. Unsecured debt must be under $250,000.
Credit impact: R7 rating for 3 years after completion.
Some credit cards offer 0% or low-rate promotional periods for balance transfers. This can be useful for consolidating smaller credit card debts.
Risk: Promotional rates expire (often after 6–12 months) and revert to standard rates of 19.99% or higher. A transfer fee (typically 1–3%) also applies. This strategy works only if you pay off the balance before the promotional period ends.
Bankruptcy is a last resort that eliminates eligible debt entirely but involves surrendering non-exempt assets and accepting a significant credit impact. For many people with overwhelming debt, it is the right legal remedy. See our bankruptcy guide for full details.
The starting point is always understanding your full financial picture. A free consultation with a Licensed Insolvency Trustee will cover all formal options. A non-profit credit counselling agency can advise on DMPs and informal consolidation. Both are free.
Key questions to ask yourself:
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