Debt: What It Is and How to Handle It
A debt is money owed by one person or entity to another.
You take on debt when you borrow money and agree to pay it back, often by a certain date. Most debt comes with interest, the cost of borrowing money. Interest is paid to the lender and can make the total amount you repay higher than the amount you originally borrowed.
Debt in Canada, by the numbers:
In the second quarter of 2026, Canadian households held $3.28 trillion in credit-market debt, including mortgages, consumer credit and other loans. Mortgage debt represented nearly three-quarters of that total.
Overall, households owed about $1.76 in credit-market debt for every dollar of disposable income. Required principal and interest payments took up 14.52% of household disposable income.
Those national figures don’t tell you whether any one person’s debt is manageable. A mortgage, a line of credit and a credit card balance can create very different kinds of financial pressure. But they do show why it’s worth understanding what you owe, what it costs and how it fits into your budget.
Debt isn't always a bad thing
BACK TO TOPA debt-free life isn’t realistic for everyone. Life is expensive, and some purchases or goals require more cash than we have available at once.
Many Canadians take on some type of debt during their lives, whether it’s a student loan, credit card balance or mortgage. While it’s important to avoid borrowing more than you can afford to repay, debt can sometimes help you pursue long-term goals.
Good debt
“Good debt” generally refers to debt that may help you build assets or pursue a goal at a manageable cost, often to increase your net worth. For example, a student loan can help pay for education, while a mortgage can help you buy a home.
That doesn’t mean these debts are automatically good investments. A degree does not guarantee a higher income, and home values can rise or fall. The interest rate, repayment terms and your ability to make the payments all matter.
Bad debt
“Bad debt” generally refers to borrowing that is expensive, used for something that quickly loses value or difficult to repay within your budget.
Credit card debt can be particularly costly because of high interest rates. Many credit cards, for example, charge 19.99% interest on purchases. Debt taken on for a depreciating asset, such as a car, may still leave you with something you can sell later. But borrowing for everyday purchases you can’t afford can be harder to recover from.
Keep in mind that the terms “good” and “bad” debt are relative and subjective. Depending on your circumstances and cash flow, debt that seems useful in one situation may become unmanageable in another.
For example, a loan for a luxury vehicle with payments you can’t comfortably afford may be risky. But a loan that helps you buy a reliable used car so you can commute to a better-paying job may be a practical choice.
How long does debt last?
BACK TO TOPDebt usually lasts until it is paid, settled or resolved through a formal insolvency process, such as a consumer proposal or bankruptcy.
Different types of debt have different repayment schedules. Personal and auto loans generally have set terms and monthly payments. A mortgage may have a 25-year amortization period, but its term is often much shorter. Credit card balances are revolving debt, meaning they can carry over from month to month.
If you miss payments, contact your creditor as soon as possible to discuss your options. Time limits for suing over a debt, and the length of time collection information remains on a credit report, vary by province or territory and by circumstance. They do not automatically erase a debt.
Can I inherit someone else's debt?
If someone dies, their debts don’t just disappear:
A co-borrower or co-signer may still be responsible for a debt if the other account holder dies.
Secured debts, like mortgages and car loans, are tied to the home or vehicle. Someone who wants to keep the asset may need to continue making payments. Otherwise, the estate may need to sell it, or the lender may repossess it.
Debts owed to the government, like taxes, are generally paid out of the estate.
Unsecured debts, including credit card balances, are also claims against the estate. If there is not enough money to pay them after higher-priority debts are settled, the lender may receive less than the full balance.
Understanding the severity of your debt
BACK TO TOPDebt-to-income ratio compares your monthly debt payments with your gross monthly income. It can help you understand how much of your income goes toward debt, though lenders may use different measures.
In Canada, mortgage lenders typically use gross debt service (GDS) and total debt service (TDS) ratios, along with other parts of your financial profile.
To calculate your debt-to-income ratio: divide your total monthly debt payments by your gross monthly income. Then multiply the result by 100 to turn it into a percentage.
For example:
Say your gross monthly income is $5,000. You also have a $1,200 monthly mortgage payment and a $500 monthly car payment. This means you pay $1,700 toward debt each month.
$1,700 ÷ $5,000 = 0.34
0.34 × 100% = 34%
In this example, 34% of your gross monthly income goes toward debt payments. That can be a useful budgeting snapshot, but it does not tell the whole story. Housing costs, other essential expenses, interest rates and savings goals all affect whether your debt is manageable.
Once I'm in debt, how do I pay it off?
BACK TO TOPThe best way to pay off debt depends on the type and amount.
Installment loans, such as personal or auto loans, typically have set monthly payments. If you make each payment on time and in full, you’ll pay off the loan according to the schedule in your loan agreement.
Revolving debt, such as credit card debt or lines of credit, works differently. It can be easier to borrow more than you can repay in a month, and interest can keep your balance growing when it carries over.
Two common strategies
Two common strategies for paying off high-interest debt are the snowball method and the avalanche method. With either approach, keep making at least the minimum payment on every debt.
Snowball method:
Put extra money toward your smallest balance first for a quick win (and a nice shot of dopamine) , then move to the next-smallest balance.
Avalanche method:
Put extra money toward your highest-interest balance first to save the most money on interest over time.
If your debt becomes overwhelming, ask for help
Dealing with debt can be stressful. A professional credit counsellor may be able to help you understand your options, which can include debt consolidation.
Debt consolidation combines multiple debts into one loan or repayment plan. It can simplify your payments and may reduce costs, but only if the new interest rate and fees are lower and you avoid taking on new balances.
Not all debt relief and credit counselling agencies are legitimate. Before signing up for a debt management plan, research the agency, understand its fees and get the terms in writing. This resource from the Government of Canada can help you find and evaluate a credit counsellor.
What happens I don't repay my debt?
BACK TO TOPMissing debt payments can lead to late fees, additional interest and contact from your lender. If the debt remains unpaid and you can’t work out a repayment plan, your account may eventually be sent to a collection agency.
For secured debts, such as a car loan or mortgage, missed payments can also put the asset at risk of repossession or foreclosure.
Dealing with debt collectors
Debt collectors work for collection agencies. These agencies may be hired by creditors to collect an unpaid debt, or they may buy the debt from the original creditor.
Having an account sent to collections can damage your credit score, which is why it’s best to try to resolve missed payments with your original creditor whenever possible.
If you're contacted by a debt collector, stay calm and take the following steps. And make sure you write everything down.
Ask for the agents name and the company they work for.
Ask who or what they're collecting money for.
Ask for their phone number.
Ask for specific details about the debt: amount owed, the name of the creditor, the date the debt was incurred.
Once you have that information, tell the debt collector that you're going to verify their information and will call them back.
Take a look at your bills and bank statements to make sure the debt collector's information is correct. It's not uncommon for debt collectors to get the wrong person or the wrong amount of debt.
» The Financial Consumer Agency has helpful tips about what to do next — whether it's repayment or correcting an error.
Know your rights if a debt collector contacts you
Collection rules vary by province and territory. They can also differ depending on whether you owe money to a bank or another federally regulated financial institution, a provincially regulated lender or a third-party collection agency.
No matter where you live, start by verifying the debt before you make a payment. Ask for the collector’s name, the collection agency’s name and phone number, the original creditor, the balance claimed and when the debt was incurred. Keep notes of every call, email and letter.
If a bank or federally regulated lender is collecting the debt
When the collector works for a federally regulated financial institution, such as a bank, or is acting on its behalf, it cannot use threatening, intimidating or abusive language, make false or misleading statements, or apply excessive pressure to make you pay.
Collectors can contact you from 7 a.m. to 9 p.m. Monday through Saturday, and from 1 p.m. to 5 p.m. on Sundays. They cannot contact you on holidays. They can generally contact friends, relatives, neighbours or your employer only to obtain your address or phone number, with limited exceptions, such as verifying employment or contacting a co-signer.
You can ask a collection agency to communicate with you only in writing. The Financial Consumer Agency of Canada explains these protections and the complaint process.
Province-specific collection rules
Some of the most useful protections vary considerably by province.
Collection agencies in Ontario must be registered. If you ask, an agency must provide a breakdown of the current amount it says you owe.
Ontario also has an accountability rule for larger collection agencies: agencies that employ or authorize 10 or more collectors must record debt-collection phone calls. The caller must tell you that the call is being recorded, and you can request a copy of the recording in writing. The agency must provide it at no charge within 10 days.
In B.C., collectors can contact you between 7 a.m. and 9 p.m. Monday through Saturday, and between 1 p.m. and 5 p.m. on Sundays. They cannot call on statutory holidays.
A collector may contact your employer to verify your employment status, job title and business address when preparing for legal proceedings, or if you have given permission. They cannot contact your employer simply to reveal that you owe a debt.
Collectors can contact family members, friends or acquaintances in limited circumstances to find your contact information, but generally cannot discuss the details of your debt without your permission. They also cannot use threats, intimidation or excessive pressure, falsely threaten legal action, publish information about your debt or add their own interest or fees unless those charges are allowed under your original agreement.
B.C. does not set a specific maximum number of collection contacts per week. If you want phone calls to stop, you can ask the agency to communicate only in writing or through your lawyer.
In Manitoba, a collection agency cannot phone or visit before 7 a.m. or after 9 p.m., or on Sundays or statutory holidays. It also cannot harass you or your family, mislead you with a document that looks like a court form, or add collection service fees unless the law allows it.
A collector must give you their name, the collection agency’s name, the creditor’s name and the balance owing. If you make a payment, ask for a signed, dated receipt that identifies the creditor and amount paid.
In Nova Scotia, collection agencies and businesses collecting their own debts cannot contact you on Sundays, between 9 p.m. and 8 a.m., or more than three times in a seven-day period.
They cannot threaten, intimidate or speak abusively to you, your family or acquaintances. They also cannot contact family or acquaintances unless that person guaranteed the debt or the collector is trying to find your address or phone number.
Collection agencies must send written notice before making telephone or electronic contact. You can ask them to communicate only through a lawyer or at an address you provide.
What about other provinces and territories?
Notice requirements, contact hours, call-frequency limits and complaint processes in Alberta, Saskatchewan, Quebec, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut are governed locally.
Use the Government of Canada’s directory of provincial and territorial consumer affairs offices to find the regulator for your province or territory.
What to do if a debt collector isn't following the rules
Keep records of every contact with the collector, including the date, time, phone number, agent’s name and what was said. Save letters, emails and voicemails.
If the collector works for a bank or another federally regulated financial institution, make a complaint through the institution’s complaint-handling process. If your creditor sold the debt to a third-party collection agency, contact your provincial or territorial consumer affairs office.
DIVE EVEN DEEPER
Clay Jarvis