The average Canadian carries over $21,000 in non-mortgage debt. If you’re struggling, here’s every option to get out of debt in Canada — ranked from DIY strategies to formal legal processes.
Your Options (Ranked by Severity)
| Option | Best For | Credit Impact | Cost |
|---|---|---|---|
| Budget + snowball/avalanche | Manageable debt, steady income | None | Free |
| Balance transfer | Under $10K, good credit | Minimal | Transfer fee |
| Consolidation loan | $5K–$50K, 650+ credit | Minimal | Interest |
| Debt management program | Struggling with payments | R7 notation | Small monthly fee |
| Consumer proposal | $5K–$250K, can’t repay in full | R7 for 3 years | ~20% of debt |
| Bankruptcy | Last resort, overwhelming debt | R9 for 6–7 years | $1,800+ |
Step 1: Know Your Numbers
Calculate your total unsecured debt and Debt Service Ratio:
| Metric | Formula | Target |
|---|---|---|
| Total Debt Service (TDS) | All monthly debt / gross income | Under 40% |
| Gross Debt Service (GDS) | Housing costs / gross income | Under 35% |
If TDS exceeds 40%, self-management may not be enough.
Step 2: Try DIY First
Debt Avalanche (Fastest, Cheapest)
- List all debts by interest rate (highest first)
- Pay minimums on everything
- Put all extra money toward the highest-rate debt
- When it’s paid off, roll that payment to the next
Debt Snowball (Most Motivating)
- List all debts by balance (smallest first)
- Pay minimums on everything
- Attack the smallest balance with extra money
- Celebrate quick wins, roll payments up
Step 3: Consider Professional Help
Free Credit Counselling
- Non-profit agencies affiliated with Credit Counselling Canada
- Free budget review and debt assessment
- May recommend a Debt Management Program (DMP)
Consumer Proposal (Most Popular Formal Option)
- Filed through a Licensed Insolvency Trustee (LIT)
- Typically repay 20–50% of total debt over 5 years
- Creditors can’t contact you or garnish wages
- Keeps your assets (unlike bankruptcy)
- R7 credit notation for 3 years after completion
Bankruptcy (Last Resort)
- Also filed through a Licensed Insolvency Trustee
- Eliminates most unsecured debt
- First-time bankruptcy: R9 for 6 years after discharge
- May lose non-exempt assets
- Surplus income payments required if above threshold
Government Resources
| Resource | What It Offers |
|---|---|
| Office of the Superintendent of Bankruptcy | Free LIT search tool |
| Financial Consumer Agency of Canada | Debt education resources |
| Provincial legal aid | Free legal advice for low-income |
| Canada Student Loan forgiveness | RAP program for student loans |
Bottom Line
Start with DIY strategies (avalanche or snowball) and free credit counselling. If debt exceeds 40% of your income and you can’t see a path out within 3–5 years, a consumer proposal is the most popular formal solution in Canada — it reduces what you owe while protecting your assets. Bankruptcy is truly a last resort.
See our guide to debt consolidation in Canada or the consumer proposal guide for more details.
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