Many Canadians find themselves in debt, often due to payday loans or credit card overuse, which can accumulate quickly.

When debt robs you of your happiness and peace of mind, people often don’t know what to do next or how to fix their financial situation.

While some people try to resolve their debts on their own, others need help from Licensed Insolvency Trustees, who offer debt help for individuals and businesses.

Many people turn to the government to see whether any free government grants are available and to find out if there are alternative options.

In this article, we’ll discuss Canadian government debt solutions and other types of debt relief.

Do free Canadian government grants to pay off debt exist?

The Canadian government doesn’t directly provide free grants to pay off debt. And while there isn’t an exclusive government debt reduction scheme, there is a program called a consumer proposal that is regulated by the government.

Consumer proposals let you pay back part of what you owe, with the rest forgiven. A consumer proposal has pros and cons, but ultimately, it is one of the best ways to consolidate debt.

The government sets the associated costs and legislation governing this service, making it one of the safest debt solutions.

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Any debt relief service that is advertised as being offered by the Canadian government does not actually originate with the government. Instead, these programs work under government regulations to provide debt relief options to consumers.

It’s also important to be on the lookout for scams and businesses that claim to be giving away government money.

For example, some firms say that they are “government approved”, baiting you into paying upfront for debt relief services or taking out a loan with high-interest rates.

Importantly, only a Licensed Insolvency Trustee can administer a consumer proposal or bankruptcy.

Is there a Canadian debt forgiveness program?

While the Canadian Government doesn’t directly offer any debt management or debt forgiveness program, there is a government-approved debt relief program called a consumer proposal that allows you to write off some of your debt.

Additionally, the government does offer multiple loans and grants for small enterprises and businesses through their Business Benefits Finder.

Options for debt relief in Canada

Instead of offering grants directly, the Canadian government has established two debt relief programs to help you reduce your debt payments. Both are legal programs available through the Bankruptcy and Insolvency Act:

However, there are other debt relief options that might better fit your situation. Here we look in detail at each program:

Debt consolidation

Credit card debt is difficult to repay because it accumulates quickly due to high interest rates. This is especially true if the cardholder lacks a solid debt management strategy and the debt originates from several cards.

Considering how outrageously high credit card interest rates are, making minimum payments results in a never-ending cycle of debt. This situation can also occur with other types of debt, such as payday loans.

Consolidating your debt lets you combine your existing debts into a single debt consolidation loan. Doing so allows you to lower your monthly payments, which will help you get out of debt faster at a lower interest rate.

If you have a low credit score, you may still be able to reduce your payments, but you’ll pay a higher interest rate.

Pros of debt consolidation

  • Suitable for a variety of debts.
  • It’s possible to access low interest rates.

Cons of debt consolidation

  • You need a stable income and a good credit score.
  • May initially lower your credit.

Debt settlement

You may look to debt settlement if you cannot pay off the entire debt. When you choose debt settlement, you negotiate with your creditors to make smaller payments than you would otherwise owe them.

You can contact your creditors yourself or ask a company to negotiate a better settlement arrangement on your behalf.

Debt settlement companies typically charge high fees and may refer you to a Licensed Insolvency Trustee, which is free.

Debt settlement companies cannot guarantee that creditors will accept a settlement offer. They have no authority to prevent creditors from contacting you.

Before choosing a debt settlement program, you might want to consider other debt repayment options.

Pros of debt settlement

  • Negotiable terms.

Cons of debt settlement

  • Companies may charge a large fee.
  • Creditors can still contact you.
  • Affects your credit.

Credit counselling

One of the leading causes of debt is a lack of financial literacy. Having the right financial knowledge and proper finance management can help you stay debt free.

Credit counsellors offer advice and solutions tailored to your financial situation, allowing you to pay off your debt quickly.

Their role is to help you manage your income and spending and to help you pay off your debts faster.

Spending patterns are an area where people are most likely to make mistakes. Reducing these mistakes will help you save money and pay off debt more quickly.

A credit counsellor may recommend a debt management plan, which would involve repaying debts over three years. Under this plan, you make monthly payments to the credit counselling agency.

Credit counselling is not for everyone, but it can help you manage your debts in the long term. The sooner you can start managing your finances, the better.

Some agencies are for-profit, so always choose a non-profit credit counselling agency.

Pros of credit counselling

  • Receive spending and budgeting advice.
  • Multiple debt options are available.

Cons of credit counselling

  • There is often an initial setup fee and a monthly fee.
  • A debt management plan doesn’t let you reduce your debt.
  • You need disposable income.
  • Affects your credit.

Consumer proposal

In Canada, a consumer proposal is the only legal way to settle debts, and you can reduce your total debt.

It is a formal arrangement made with creditors, overseen by a LIT who will administer your proposal and help you determine a reasonable monthly payment schedule.

The best thing about consumer proposals is that they can reduce your debt, and you can keep your assets. This solution is better for creditors than bankruptcy because they get paid more.

They’re effective for various debts, including tax debts, personal loans, student loans, and credit card bills.

This arrangement allows you to freeze interest on your debts, stop collection calls and end wage garnishments.

Pros of consumer proposals

  • Reduce your debt.
  • Lower your monthly payments.
  • Works for many types of debt.
  • Keep your assets.
  • Freeze interest and charges.
  • Legally stop collection calls.

Cons of consumer proposals

  • You need disposable income.
  • Not all student loans can be eliminated.
  • Affects your credit.


Bankruptcy isn’t the best solution for debt relief since it’s only beneficial after all other solutions fail. To qualify, a Licensed Insolvency Trustee must examine your assets and liabilities to determine whether you can afford to pay your debt.

When you file for bankruptcy, your assets are sold, and the proceeds are distributed to your creditors. In return, you can clear your debts and start over.

Pros of personal bankruptcy

  • Eliminate your debts.
  • Stop creditor action.
  • Freeze interest and charges.
  • Some assets are protected.

Cons of personal bankruptcy

  • It can be expensive if you have a substantial income.
  • Your assets may be at risk.
  • Affects your credit.

Take advantage of the many debt relief programs available

There are no free Canadian government grants to pay off debt, but a consumer proposal is a government debt relief program that can help you reduce debt payments. Bankruptcy also falls into this category and offers creditor protection under Canadian law.

Getting out of debt isn’t easy, but you can use debt relief programs to catch a break and pave a better path toward a debt-free future.

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