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Published May 31, 2023

How to Get Out of Debt

Canadian debt relief options like credit counselling and consumer proposal are ways to get out of serious debt and improve your financial situation.

It’s possible to get out of debt, even if it feels impossible or overwhelming right now. 

If you’ve taken on too much debt, you may find it’s having a detrimental effect on your credit score, making it difficult to get a mortgage or car loan, or even jeopardizing your ability to afford food and housing.

The good news is there are several ways to get out of debt, including credit counselling, debt settlement, consumer proposals and bankruptcy. Choosing the right method for you can help significantly improve your financial situation.

Before we take a look at these ways to get out of debt, let’s examine how you can actually tell whether you have a concerning amount of debt in the first place.

When to seek help with debt

The simplest way to determine how much debt you’re in is to calculate your debt-to-income ratio. You can do this by dividing your monthly total debt payments by your gross monthly income. Then, multiply the result by 100 to get a percentage.

The resulting percentage is your debt-to-income ratio, an expression of how much monthly debt you have in relation to your monthly income. For example, if you have total monthly debt payments of $1,800 and your gross monthly earnings are $6,000, your debt-to-income ratio is 30%.

A high debt-to-income ratio, generally thought of as 43% or more, is an indicator that too much of your monthly income is being used to pay debts. However, that’s not the only indicator that you’re in a lot of debt. Here are some other signs that you may need to reach out for help:

  • You’re only able to make the minimum payments on credit card debt.
  • You have difficulty paying your bills on time.
  • You’re receiving “past due” notices and maybe collection agencies have started to call.
  • You’re relying on credit to pay your monthly expenses.
  • You feel stressed or anxious about your debt.

If you’re experiencing one or more of the above circumstances and you’ve been unable to get out of debt on your own, there are some relief options available in Canada that you may want to consider.

» MORE: How to get out of credit card debt

Options for getting out of debt

The right debt relief option for you will depend on your personal circumstances. Here are a few examples of what’s available:

Credit counselling

If you’re struggling with debt or simply want to learn strategies for better money management, consider talking to a credit counsellor before pursuing other options on this list. These professionals can you decide which debt repayment strategy is right for your situation and even help negotiate with creditors on your behalf.

To find a credit counsellor that will have your best interests at heart, look for an accredited non-profit credit counselling agency that offers free debt evaluations or consultations. Some non-profit agencies might offer additional free services, as well. Once you’ve found a potential agency, investigate their reputation and customer reviews in places like the Better Business Bureau and the Office de la protection du consommateur before agreeing to work together. 

Start your search with the following provincial or national associations:

Debt consolidation

If you have a number of different unsecured debts, such as credit cards or payday loans, debt consolidation can combine them into a single loan so you only have to make one payment a month toward it. You can consolidate debt in several different ways, including a home equity loan (if you’re a homeowner) or a personal loan. With each of these methods, the concept is the same: you take out a new loan for the total value of your combined outstanding debts, then use the loan to pay them off. Then you’re left with a single loan to pay, typically at a lower interest rate than the rate you were paying for all your individual debts.

To qualify for a debt consolidation loan, you’ll need to meet credit score requirements and the amount of your debt must not exceed loan limits set by the lender. You can find out more about your eligibility by talking to your preferred lender.

Debt settlement

Debt settlement is the process of negotiating with your creditors to eliminate your debt in exchange for a lump sum of money, usually less than the total amount that you owe. In Canada, this process is typically managed by a debt settlement company. These companies make money by charging their clients fees, which may have to be paid upfront or monthly, even if the negotiations are ultimately unsuccessful.

Creditors are not required to work with debt settlement companies, but if an agreement is reached, you’ll be required to pay the negotiated amount in a lump sum to your settlement company. When choosing a debt settlement company, read any contracts carefully before signing, and find out if any consumer complaints have been filed against the company by searching the Better Business Bureau, the Office de la protection du consommateur or your local Consumer Affairs office.

Consumer proposal

A consumer proposal is a debt relief solution provided by the Canadian federal government. It’s a legally binding agreement that must be facilitated by a Licensed Insolvency Trustee. A consumer proposal is a negotiated settlement through which you pay a percentage of what you owe in exchange for full forgiveness of your unsecured debts.

While a consumer proposal will cause your credit score to decrease significantly, you get to keep your assets (unlike when you declare bankruptcy). Plus, the payments are interest free and spread over five years. The cost of a consumer proposal depends on your income and the amount you owe. A consumer proposal will stop any legal proceedings against you as long as you satisfy the conditions of the agreement.


Bankruptcy is a legal process where you declare yourself unable to repay your unsecured debts and are absolved of your obligation to do so — though you will have to pay for the bankruptcy itself. To file for bankruptcy, you must work with a Licensed Insolvency Trustee (LIT). has a search tool that can help you find an active LIT in your area. You may then have to disclose and surrender assets, give up your credit cards and attend credit counselling. Bankruptcy will have a negative impact on your credit score and may remain on your credit file for up to seven years.

About the Author

Aaron Broverman

Aaron Broverman has been a personal finance journalist for over a decade. His work has appeared on such outlets as Yahoo Finance Canada, Bankrate and, Money Under 30, Wealth…

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