Debt relief options in Canada, compared honestly
There are six real routes out of consumer debt in Canada. Most articles about them are written by someone who sells one of the six. Here they are side by side, including the two that earn us nothing.
Updated July 25, 2026The six options
Every legitimate debt solution in Canada is one of these six, or a rebranded version of one of them. If somebody offers you a seventh, ask which of these it actually is.
1. Do it yourself
A budget, a payoff order, and no new borrowing. You attack the highest interest rate first if you want the mathematically cheapest result, or the smallest balance first if you need early wins to stay motivated. Costs nothing, is available to everyone, and is the right answer more often than the debt industry admits. It works when your income can realistically clear the balances in roughly three to five years.
2. A hardship arrangement with your own creditors
You call each creditor and ask for reduced interest, a lower payment, or a short pause. Also free. Creditors do this because a customer who keeps paying something is worth more than one who defaults. Ask them in writing how the arrangement will be reported to the credit bureaus, because the answer varies and it matters.
3. A debt management plan through a not for profit credit counsellor
The agency negotiates with your unsecured creditors, typically to reduce or waive interest, and you make one monthly payment to the agency which distributes it. You repay the principal in full, usually over a defined period. FCAC's guidance is worth reading before you pick an agency: check that it is in good standing with a national association such as Credit Counselling Canada, ask whether the first consultation is free, ask what the fees are, and ask for a written proposal.
4. Debt consolidation
You borrow once to pay off several debts, ideally at a lower rate. This is the option the internet pushes hardest, because it is the one with a commission attached. It is genuinely good when the new rate is clearly lower and the term is not much longer. FCAC's own warning is the honest framing: consolidating may extend your repayment period, costing more in interest over time, and if you keep the spending habits that caused the debt you will accumulate more.
5. A consumer proposal
A legally binding offer to your unsecured creditors, filed by a Licensed Insolvency Trustee, to repay part of what you owe over a fixed period. The OSB states your total debts must not exceed $250,000 excluding a mortgage on your principal residence, and that the term cannot exceed five years. Filing stops wage garnishments and lawsuits already in progress and stops payments to unsecured creditors.
6. Bankruptcy
A federal legal process that releases you from most unsecured debts in exchange for surrendering non exempt assets and, if your income is high enough, making surplus income payments. The OSB states a first bankruptcy discharges automatically after nine months, or twenty one months if you have surplus income above the threshold, provided the discharge is not opposed and you attend the two mandatory counselling sessions.
For profit debt settlement is not a seventh option, it is a paid intermediary sitting in front of options 2, 3 and 5. FCAC's page on debt settlement companies is unusually blunt: creditors do not have to negotiate, you may pay fees even if they refuse, some companies deliberately delay payments to your creditors which damages your credit, and only a Licensed Insolvency Trustee may administer a consumer proposal or a bankruptcy.
Start with the help that costs nothing
Before you borrow, before you sign anything, and before you call a number you saw in an advertisement, use the free options. They are genuinely free, they are regulated or not for profit, and for a large share of people they are simply the better answer.
- A not for profit credit counsellor. The first appointment is normally free. They will look at your whole situation and tell you honestly whether you need a plan or a legal process. Find an accredited agency through Credit Counselling Canada. FCAC also names the Canadian Association for Financial Empowerment, and in Quebec the ACEF network listed by the Coalition des associations de consommateurs du Quebec.
- A free consultation with a Licensed Insolvency Trustee. LITs are federally licensed and supervised by the Office of the Superintendent of Bankruptcy. The first meeting is free and they are legally required to explain all your options, not just the ones they administer. Search the official register at the OSB trustee search.
- Calling your creditors yourself. Free, and more effective than most people expect. Ask for a hardship arrangement, a lower rate, or a payment plan. Banks and card issuers have hardship teams because unpaid debt costs them more than a reduced payment does.
- The federal debt self assessment. The OSB runs a free debt questionnaire that points you to the right category of solution. No sales call attached.
We earn nothing from any of the four options above. We are listing them first because they are the right first move, and because a page that buries them under a loan application is not worth reading.
Side by side
| Option | What it costs you | Legally stops creditors | Best for |
|---|---|---|---|
| Do it yourself | Nothing beyond the debt itself | No | You can clear the balances in about three to five years on current income |
| Hardship arrangement | Nothing | No | A temporary income shock, not a structural gap |
| Debt management plan | Agency fees, ask for them in writing. First session normally free | No | You can repay the principal but the interest is what is drowning you |
| Consolidation loan | Interest on the new loan, plus any setup fee | No | You qualify for a genuinely lower rate and the spending has stopped |
| Consumer proposal | A regulated tariff paid out of your payments, not on top | Yes | You cannot repay in full, but you can pay something monthly for up to five years |
| Bankruptcy | Trustee fees plus surplus income payments if applicable | Yes | You cannot service the debt at all and have few non exempt assets |
The fee a Licensed Insolvency Trustee may take for administering a consumer proposal is set by federal regulation, not by the trustee: $750 on filing, $750 on approval, and 20 per cent of the money distributed to creditors, plus counselling costs of $85 per individual session. It comes out of the payments you make, not on top of them.
Source: Bankruptcy and Insolvency General Rules, section 129 and section 131.
How to actually choose
Work through these in order. The first honest yes is your answer.
Could you clear the balances in about three to five years if the interest stopped?
If yes, you are in debt management plan or hardship territory, not insolvency territory. Book the free credit counselling appointment.
Do you qualify today for a rate meaningfully lower than what you are paying?
If yes, and the amortisation is not dramatically longer, consolidation can be a real saving. If you only qualify at a similar or higher rate, consolidation will increase your debt, which is exactly what FCAC warns about.
Can you pay something meaningful each month, but not the full balance?
That is the shape of a consumer proposal. Book a free consultation with a Licensed Insolvency Trustee and get an actual number before you form an opinion about it.
Can you not pay anything meaningful at all?
Then bankruptcy is the process the law built for that situation, and avoiding it out of shame usually just adds years of collections to the same outcome.
Two of the six options cost you nothing and are not sold by anybody. If a website walks you past both of them straight into a loan application, that tells you what the page is for.
What each does to your credit report
| Event | How long it stays on an Equifax Canada report |
|---|---|
| Collection or charged off account | Six years from the date of first delinquency |
| Consumer proposal | Three years after you pay it off, or six years from filing, whichever comes first |
| First bankruptcy | Six years after the discharge date, or seven years after filing with no discharge date |
| Second bankruptcy | Both bankruptcies remain for fourteen years after the discharge dates |
| Judgment | Six years from the date reported |
| Hard credit inquiry | Three years |
Note that a debt management plan is not on this list because it is not a legal insolvency event. It is usually still reported by the participating creditors, so ask the agency for the exact reporting treatment in writing before you enrol.
Common questions
What is the cheapest way to get out of debt in Canada?
If you can clear the balances within a few years on your own income, paying them down yourself in order of interest rate is the cheapest route, because you pay no administration fee to anyone. The next cheapest is usually a hardship arrangement negotiated directly with your creditors, which also costs nothing. Paid options only make sense when the free ones are not enough.
Does a consumer proposal or bankruptcy stop interest and collection calls?
Yes. The Office of the Superintendent of Bankruptcy states that when a consumer proposal is filed you stop making payments directly to your unsecured creditors, and wage garnishments and lawsuits already underway are stopped. That legal stay is the main thing a proposal buys you and it is why only a Licensed Insolvency Trustee can administer one.
How much debt do you need before a consumer proposal is possible?
There is no minimum in the legislation, but there is a maximum. The OSB states that your total debts must not exceed $250,000, not including a mortgage secured by your principal residence. Above that limit the process is a Division 1 proposal instead.
Is a debt management plan the same as debt consolidation?
No, and the wording gets abused. A debt management plan is administered by a credit counselling agency, which collects one payment from you and distributes it to creditors, often with interest reduced or waived by agreement. Debt consolidation means borrowing new money to pay off old debts. One reorganises what you owe, the other replaces it with a new loan.
Which option is worst for my credit report?
Bankruptcy. Equifax Canada removes a first bankruptcy six years after the discharge date, and a consumer proposal three years after you have paid it off or six years from filing, whichever comes first. That said, an account sitting unpaid in collections for years is not a clean report either, so the comparison is rarely between a bad option and a perfect one.
Sources
- Office of the Superintendent of Bankruptcy, Consumer proposals. Source for the $250,000 debt limit and the five year maximum term. Read July 25, 2026.
- Office of the Superintendent of Bankruptcy, Considering bankruptcy. Source for the nine month and twenty one month automatic discharge, the $200 surplus income trigger, the two counselling sessions, and the debts a discharge does not release. Read July 25, 2026.
- Office of the Superintendent of Bankruptcy, Directive No. 11R2-2026, Surplus Income. Source for the 2026 monthly income thresholds by family size. Issued March 27, 2026.
- Bankruptcy and Insolvency General Rules, section 129. The regulated tariff for a consumer proposal administrator: $750 on filing, $750 on approval, and 20 per cent of money distributed to creditors.
- Equifax Canada, How long does information stay on my credit report. Source for the retention periods used on this page. Read July 25, 2026.
- Financial Consumer Agency of Canada, Getting help from a credit counsellor. Source for how to vet an agency and which associations to check. Read July 25, 2026.
- Financial Consumer Agency of Canada, Debt consolidation. Source for the warning that consolidation can extend your repayment period and cost more in interest. Read July 25, 2026.
- Financial Consumer Agency of Canada, Using a debt settlement company. Source for the risks, the prohibited promises, and the rule that only a Licensed Insolvency Trustee may administer a proposal or bankruptcy. Read July 25, 2026.
- Office of the Superintendent of Bankruptcy, Find a Licensed Insolvency Trustee. The official federal search tool. Read July 25, 2026.
- Credit Counselling Canada, Members. The member list of accredited not for profit agencies. Read July 25, 2026.
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