Updated: April 2025  |  bremo.io financial guides

How Much Debt Is Too Much in Canada?

There is no single number that defines "too much debt." What matters is the relationship between your debt, your income, and your ability to make progress on repayment. The same $30,000 in credit card debt is manageable for someone earning $120,000 and crushing for someone earning $38,000.

Here are the key benchmarks that financial professionals, lenders, and insolvency practitioners use to assess debt levels.

The Debt-to-Income Ratio

The most widely used measure is the Total Debt Service (TDS) ratio: the percentage of your gross monthly income that goes toward all debt payments (mortgage/rent, car loans, credit cards, lines of credit, student loans).

• Under 36%: Generally considered healthy. Most lenders are comfortable here.
• 36–43%: Caution zone. Lenders may still approve mortgages, but you are stretched.
• 43–50%: High stress territory. Little room for unexpected expenses or income disruption.
• Above 50%: Unsustainable for most people. Serious debt management intervention may be needed.

See our detailed guide on debt-to-income ratios in Canada.

The "Can You Make Progress?" Test

A simpler and more practical question: are your debt balances declining year over year? If you are making payments but your total debt is flat or growing (because interest exceeds your payments), you are effectively on a treadmill and debt is too high relative to your income.

Consumer Debt Warning Thresholds

For non-mortgage unsecured debt specifically, warning levels include:

• Minimum payments on credit cards and lines of credit exceed 10–15% of your net monthly income
• You cannot pay credit card balances in full most months
• You have not reduced your total non-mortgage debt in the past 12 months
• You need to borrow to cover regular monthly expenses

The 20/10 Rule

A common budgeting guideline is the 20/10 rule: your total consumer debt (not counting a mortgage) should not exceed 20% of your annual net income, and your monthly consumer debt payments should not exceed 10% of your net monthly income.

Many Canadians exceed these thresholds — particularly those carrying large car loans or credit card debt — but the rule provides a useful benchmark.

Behavioral Warning Signs

Beyond ratios, behavioral signals often indicate debt has become problematic:

• Avoiding looking at your bank balance or credit card statements
• Anxiety about what happens if your income is disrupted
• Using credit for food, utilities, or other necessities because cash runs out
• Taking cash advances on credit cards
• Having multiple payday loans at once
• Lying to a partner or family member about debt levels

When Debt Becomes Legally "Insolvent"

Legal insolvency under the Bankruptcy and Insolvency Act is defined as being unable to meet your financial obligations as they come due, or having total liabilities that exceed the total value of your assets. This is the threshold at which formal debt relief through a consumer proposal or bankruptcy becomes legally available.

Insolvency does not mean you must file for bankruptcy — it simply means you qualify for formal relief if you choose to pursue it.

What to Do If Your Debt Is Too High

If you recognize your situation in the above warning signs:

1. List all your debts, balances, and rates in a spreadsheet or on paper
2. Calculate your TDS ratio to understand the severity
3. Book a free consultation with a non-profit credit counsellor or Licensed Insolvency Trustee
4. Understand your options: DIY payoff, DMP, consumer proposal, or bankruptcy
5. Take action sooner rather than later — debt rarely resolves itself