Out of nowhere, debt can become a problem.

What may seem like manageable debt can suddenly escalate in a short space of time.

Astronomical credit card interest rates, deceptive payday loans or spending more than you can afford can result in missed repayments, collections, damage to your credit and rent arrears.

The result is you take out more loans to repay your mounting debts, leaving you trapped in a vicious cycle of debt. While borrowing more money may buy you some time, often, it’s only a band-aid on a bullet wound.

But there is debt help available, and the debt help tips in this guide will help you overcome debt problems.

How to get out of debt in Canada

Managing debt can be stressful, but don’t bury your head in the sand. Use these debt tips to improve your financial health and resolve your debt problems.

1. Learn about credit

Let’s start with your credit report.

Knowing what’s on your credit file is the first step toward a better understanding of your financial situation.

Your credit report lets you figure out how your debt affects your credit, such as:

  • Your credit accounts and how much you owe (a list of your debts).
  • Credit utilization: the percentage of available credit you currently use.
  • Late and missed payments.
  • The age of your accounts.
  • Bank alerts: closed accounts due to unpaid overdraft or service charges and returned cheques.
  • Inquiries: recorded when a company performs a credit check.
  • Public records: bankruptcy, consolidated debt, collections, debt recovery or judgements.
  • Secured loans.
A credit report summarizes how you manage credit and your financial obligations.

In other words, a credit report gives you a snapshot of your finances so you can make the necessary changes.

The other thing to keep in mind here is your credit score.

A credit score is a number between 300 and 900 calculated using the information in your credit report.

This score is used by lenders, banks, and other companies to make decisions about you. Having a good credit score allows you to access credit products, such as mortgages, credit cards and loans.

Your credit score in Canada can range between 300 and 900

Your credit score can be the difference between accessing certain debt relief solutions. For example, your total debt, credit score and credit history are all considered when applying for a debt consolidation loan.

That’s why it’s important to manage credit responsibly to make sure your score goes up. Your credit score will improve when you make payments on time and reduce your balances.

Once you know the facts, you can start to improve your credit score. If your debt problems started recently, you might even find that you can avoid damage to your credit if you take action immediately to settle your debts.

If there is a mistake on your credit report, it’s essential to:

  • Contact the credit bureau to have it corrected.
  • Talk to the creditor to ensure it’s not an error on their part.
Common credit report errors

There is a common misconception that it costs money to access your credit report, but there are many free options.

For example, all Canadian consumers can use Equifax’s free credit score and report service, which updates once a month.

myEquifax credit report dashboard

TransUnion also offers a free credit report called a Consumer Disclosure, but it doesn’t include your credit score.

TransUnion Consumer Disclosure - Free credit report

Check your credit often. It’s free, and it does not affect your credit score.

2. Understand when debt is too much

When is debt a problem? When you get into trouble with debt, take steps to understand how serious the situation is.

Signs of financial trouble

Recognize the warning signs of debt before the situation gets worse:

  • Making only the bare minimum payment.
  • Missing bill payments regularly.
  • Being unable to make all the required payments each month.
  • Disconnection of utilities due to late payment (such as your mobile phone plan or electricity supply).
  • Reliance on credit cards (you can’t get by without using them).
  • Going over the credit limit on credit cards and other lines of credit.
  • Borrowing money to make ends meet.
  • A high credit utilization ratio on your credit report.
  • Phone calls demanding payment from creditors or collection agencies.

If you are experiencing any of the above, you might have a debt problem.

Signs of financial trouble

How much debt do you have?

Take the time to understand your financial situation better by reviewing your debts. Perhaps you have unpaid credit cards, defaulted loans, or you barely make the payments on your mortgage.

Nevertheless, make a list of all your debts. If you don’t have a record of the debt, you can request a paper copy from the creditor or download a statement from the creditor’s website. Sometimes, you can check your credit report to obtain this information.

Make sure you include everyone you owe money to, such as:

  • Credit cards
  • Personal and payday loans
  • Lines of credit
  • Your mortgage
  • Student loans
  • Bank overdrafts
  • Utility bills
  • Tax debts
  • Unpaid rent
  • Debts owed to friends and family.

Take a note of the creditor’s name, interest rate, the minimum monthly payment and the total amount you owe.

Doing the above is a necessary step to understanding exactly how much you owe, regardless of whether you resolve the debts on your own or you decide to get help.

Income versus expenses

After evaluating your income and expenses, you can calculate how much you have leftover to pay towards your debts at the end of the month.

It’s a simple task that shows you where your money is going, helping you better control your spending.

Calculate your monthly income and expenses to see where your money is going.

What happens if you have more expenses than income?

If you find that your income doesn’t cover all your expenses, you may be insolvent. But there are ways to reduce or consolidate your debt so you pay less each month, which we’ll discuss in more detail below.

Assets and debt

In addition to your income and expenses, list your assets. An asset is an item of value that you can convert into cash, such as your home, car or investments.

Some debt solutions require you to disclose your assets, while others use an asset as collateral.

While you might consider selling assets to repay your debt, you don’t always have to. Before you decide, always talk to a financial professional such as a financial advisor, non-profit credit counsellor or a Licensed Insolvency Trustee.

3. Settle debt yourself

If you have a steady income and money left over after essential bills, you might be able to solve debt problems yourself.

Choosing which debts to pay off first

If you pay more towards the debt with the highest interest rate first, you’ll pay less interest and save money. This is called the debt avalanche method.

Debt avalanche method

If you want to pay off your debt faster and save money, you might want to consider the debt avalanche method. This involves paying off debt with the highest interest rate first. When you’ve paid that debt, prioritize the next debt with the highest interest rate.

Debt avalanche method

As an example, let’s say you have a $5,000 loan and a $5,000 credit card. Because the loan has a higher interest rate, you would pay more towards that debt while still making the minimum payments for your other debts.

Debt snowball method

An alternative option is the debt snowball method, where you pay down smaller debts first to build momentum before you move on to the more significant debts. You must continue to make the minimum payments toward your other debts.

Debt snowball method

Paying down some smaller debts can motivate you early on in your debt repayment journey. However, you may pay more in interest over time because you are not paying the larger debts.

Debt avalanche vs debt snowball: choosing what debt to pay down first

Although the debt avalanche method can initially feel like an uphill struggle, it’s an efficient way to combat debt because it can save you money that you’d otherwise pay towards the accumulating interest.

But dealing with large debts first can often feel like a never-ending battle.

Some people feel more motivated using the snowball method because it allows for some quick wins immediately. Once you have paid off one debt, no matter how small, you feel a sense of accomplishment that drives you on to the next.

As a result, you’ll start to believe that you can clear your debts.

Make sure your debt is going down

Whether you choose the debt snowball or debt avalanche method, ensure your debts are going down. When you do this, you’ll start to improve your credit score and avoid the need for additional debt help.

And remember, you don’t have to stick to one method; you can use both.

If your debts aren’t decreasing, consider getting advice from a professional such as a Licensed Insolvency Trustee or non-profit credit counsellor.

What type of loan has the highest interest rate?

Payday loans are the most expensive form of credit available and typically charge annual interest rates between 400-500%. It is a form of credit that often traps borrowers in a cycle of debt, requiring them to borrow more again the next month.

Payday loans are the most expensive form of credit available and typically charge annual interest rates between 400-500%.

If you have a payday loan, you might want to prioritize repaying the debt so you don’t pay more interest than you need to.

Beware of using credit to pay off debt

If you’re using a credit card, payday loans or a line of credit to manage your debt, you aren’t clearing debt; you’re just moving it to another account without reducing the interest rate. In fact, you might even be increasing your debt load.

Will creditors settle for less?

If you have missed a couple of payments in a row or cannot make the next bill payment, contact your creditor and explain your situation. Sometimes, they will work with you to reduce your monthly payment, lower the interest rate or give you more time to pay.

After all, if you don’t ask, you don’t get.

How to pay a debt in collections

Debts in collections damage your credit score and can result in legal action, so it’s vital to resolve the situation as quickly as possible.

Debts in collections damage your credit score and can result in legal action.

Arrange a monthly repayment plan that you can afford, and don’t be pressured into an agreement you can’t keep. To find out more, read our guide on debt collection agencies.

You can also look at our provincial guides for debt collection in Alberta, British Columbia, Manitoba, New Brunswick and Ontario.

4. Get support by exploring debt help options

We are bombarded daily with new ways to get into debt, and the same can be said when it comes to debt help.

There are so many debt relief options available in Canada, and the one that’s right for you depends on the type of debt and whether you can afford to make debt repayments or not.

Here are some of the main options:

Debt consolidation

Debt consolidation lets you pay off your high-interest debts and make one monthly payment towards a personal loan with a lower interest rate. You can lower your payments and pay your debts faster.

There are a number of debt consolidation options available. Unsecured loans often require a steady income and a good credit score, but secured loans are also available.

Debt settlement

You can use a debt settlement company to negotiate with your creditors on your behalf. Although you can save money, creditors aren’t required by law to negotiate with a debt settlement company, and there is a fee.

Free credit counselling

By using a non-profit credit counselling agency, an initial consultation for debt advice is generally free.

With a free credit counselling service, you’ll receive advice on managing debt, your monthly budget and the counsellor may recommend a debt solution based on your needs.

If you decide to proceed with their recommendation, you may pay an initial set-up fee and a monthly fee depending on the debt relief solution. This is particularly common in a debt management plan, where interest is reduced, but you’ll repay your debts in full.

Debt management plan

A debt management plan through a credit counselling agency can help with your debts. You can consolidate all of your payments into one single monthly payment. This solution is most commonly used for credit card debt.

Consumer proposal

A consumer proposal is a popular choice if you cannot pay your debts, but you must have a reliable income. It’s an ideal choice if you have assets to protect, such as your home.

It’s a legally binding agreement between you and your creditors that lets you repay what you can afford. Your debts are consolidated into one monthly payment, and interest is frozen.


If you have low or no income and no assets to protect, bankruptcy is a fast and straightforward way to resolve your debts.

It’s important to note that a consumer proposal and bankruptcy are formal legal arrangements under the Bankruptcy and Insolvency Act.

Here’s a tip: learn how debt relief programs work by reading our guide.

Find a Licensed Insolvency Trustee

If you want to solve your debts but need some impartial advice, discuss your situation with a Licensed Insolvency Trustee.

Trustees are licensed and regulated by the Office of the Superintendent of Bankruptcy in coordination with the Government of Canada. It’s their job to give you the best possible financial advice.

A trustee is the only person that can administer government-regulated insolvency proceedings that allow you to be discharged from your debt, such as a consumer proposal or bankruptcy.

5. Pay your debts faster by budgeting

Many of us don’t budget at all, which is one of the reasons people fall into debt.

When your know your exact income and how much you spend every month, you can plan for the future, reduce your outgoings and pay off your debt faster. As a result, you can boost your finances and live a more stable lifestyle.

The good news is it’s not complicated, but that doesn’t mean it’s easy: many budgets don’t work because not enough time is spent in the planning stage.

As we covered in step two, you’ll want to make two lists: one for your income and one for expenses in the past month.

You have to pay things like your mortgage, rent, household bills, and debt repayments, which are deducted from your income to calculate your disposable income. Then there are other expenses, such as groceries and travel, that you must account for.

Once you know your disposable income, you can decide if you can afford to go on that date night or whether to buy those game tickets.

By understanding where your money is spent, you can make profound changes to how you live. As a result, you might even be able to save money.

6. Reduce your bills

Your debt repayments are only one factor. Maintaining a budget is much easier if you can cut back on your monthly household spending.

Reducing your grocery bill or cutting back on TV and Internet costs are all ways to save money.

Tips for saving money

  • Grocery stores naturally charge more for big brand names, so opt for store-brand instead, such as President’s Choice or Great Value.
  • Some online grocery services are convenient but expensive. Shop around or go to the store to avoid paying high delivery fees.
  • Stores like Dollarama provide cheap household products such as dish soap, detergent, cleaning supplies and healthcare products.
  • Use rewards programs such as PC Optimum to get money off purchases.
  • Switch to a cheaper Internet, TV and phone bundle and cancel services you hardly use.
  • Use shared cell phone plans to reduce the cost for the whole family.
  • Switch banks to get higher interest rates, lower fees and rewards.
  • Reduce recurring subscriptions you hardly use.

See also: How to save money in Canada

7. Save money, live better

Whatever your financial goals, saving money gives you stability and provides a safety net when the unexpected happens.

When you’re living from paycheck to paycheck, what happens if the car breaks down or a large bill suddenly lands on your doorstep?

To thrive financially, good budgeting skills are essential regardless of your income. When you can manage your money well, often you can save some money as a result.

And if you’re able to accumulate a small amount of savings, you’ll have peace of mind. Even putting away as little as $50 every month is an excellent first step, and you’ll have saved $600 a year later.

Saving requires discipline, so don’t leave money in your chequing account where it’s easy to spend. Instead, set up a separate savings account and make regular payments into it.

Use a debit card instead of a credit card. When the money immediately comes out of your account, it’s easier to keep track of how much you spend.


If you’ve made it this far, I hope the debt help tips in this guide help you to deal with your debt problems, reduce your stress and put you on the path to debt freedom.

Resolving your debts requires patience and hard work, and there is no one-fits-all solution.

Get help with debt

If you can’t face your debt alone, a good first step is to consult a Licensed Insolvency Trustee. You’ll receive tailored debt advice from a regulated debt specialist who can help you understand your options.

All consultations are free and completely confidential.

Get debt relief

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