The Ultimate Guide to Debt Relief Options for Canadians

Managing and overcoming debt is a common challenge for many Canadians. Whether it stems from credit card balances, student loans, medical expenses, or mortgages, understanding your debt relief options is critical to regaining financial stability. In 2025, debt relief solutions range widely—from government programs and legal alternatives to private sector assistance. This comprehensive guide breaks down each option, clarifies who qualifies, compares benefits and drawbacks, and directs you toward the right tools and partners to help make informed decisions.

Overview of Debt Relief Options in Canada

Debt relief solutions can be broadly categorized into:

  • Government Programs

  • Legal Solutions

  • Private Sector Debt Relief

Each category serves different financial situations, offers varying levels of support, and comes with unique eligibility criteria.

Government Debt Relief Programs (2025)

The Canadian government offers several programs designed to support individuals and families struggling with debt by providing structured repayment options or loans at favourable terms.

1. Canada Student Loans Repayment Assistance Plan (RAP)

  • Who Qualifies? Canadian graduates with federal student loan debt who demonstrate financial hardship.

  • Purpose: To reduce monthly student loan repayments to an affordable level.

  • Benefits: Payments adjusted based on income and family size; interest may be subsidized.

  • Limitations: Only applies to Canada Student Loans, not provincial loans.

2. Home Buyers' Plan (HBP) – Debt Consolidation Option

  • Who Qualifies? First-time home buyers looking to withdraw funds from their RRSPs.

  • Purpose: Allows withdrawal of up to $35,000 tax-free to consolidate debt and fund home purchase.

  • Benefits: Helps reduce high-interest debt by restructuring it against lower interest mortgages.

  • Limitations: Funds must be repaid into RRSP over 15 years to avoid taxes.

3. Canada Emergency Response Benefit (CERB) and Wage Subsidies (Ongoing Support)

  • Who Qualifies? Individuals affected by economic disruptions impacting their ability to work.

  • Purpose: Provide financial assistance and reduce immediate debt accumulation.

  • Benefits: Direct cash support reduces reliance on borrowing during hardships.

  • Limitations: Temporary; primarily aids acute financial strains, not long-term debt consolidation.

Legal Debt Relief Solutions

Legal solutions involve formal processes sanctioned by the Canadian legal system to resolve or restructure debt, often offering protection from creditors.

Solution Description Who Qualifies? Pros Cons Impact on Credit Score Consumer Proposal Formal offer to pay creditors a negotiated amount over up to 5 years Individuals with regular income but unable to pay debts Stops collection actions, lowers debts May take several years for completion Moderate to high impact Bankruptcy Legal discharge of debts after liquidation of assets Those with no feasible way to repay debts Eliminates most debts entirely Asset loss, lasts 6-7 years on credit report Severe immediate impact Debt Management Order (DMO) Regional legal process (varies by province) Residents with specific state/province criteria Court-enforced repayment plan Limited availability in some provinces Moderate impact

Consumer Proposal

A Consumer Proposal allows debtors to negotiate with creditors to settle debts for less than owed while avoiding bankruptcy. It is administered by a Licensed Insolvency Trustee (LIT). Qualifiers must demonstrate income sufficient to make regular payments over a maximum five-year period.

Key points:

  • Typically impacts credit rating for up to 3 years after completion.

  • Prevents wage garnishments and collection calls.

  • Does not require asset liquidation.

Bankruptcy

Bankruptcy is a legal declaration that you are unable to repay your debts. It offers a fresh start but at the cost of asset liquidation and significant credit rating consequences. Individuals who have exhausted other options and have minimal assets often use bankruptcy as a last resort.

Key points:

  • Most debts, excluding student loans (if bankrupt within 7 years of finishing school), are discharged.

  • Requires surrendering non-exempt assets.

  • Typically remains on credit reports for 6-7 years post-recovery.

Private Sector Debt Relief Solutions

The private sector offers debt relief services such as:

  • Debt consolidation loans

  • Debt settlement companies

  • Credit counselling agencies

Debt Consolidation Loans

A debt consolidation loan combines multiple debts into one loan with a potentially lower interest rate, simplifying repayment.

Pros of Debt Consolidation Loans in Canada

  • Simplified Payments: Combining multiple debts into a single loan means making one monthly payment instead of managing several, reducing the risk of missed payments.

  • Lower Interest Rates: Debt consolidation loans often come with lower interest rates compared to credit cards or high-interest loans, potentially reducing the total cost of debt.

  • Improved Credit Score: Successfully managing a consolidation loan by making timely payments can positively impact your credit score over time.

  • Fixed Repayment Schedule: Most consolidation loans have a fixed term and payment plan, providing clear timelines for becoming debt-free.

  • Potential Savings: By securing a loan with a lower interest rate and structured repayment, you may save money over the life of your debt.

Cons of Debt Consolidation Loans in Canada

  • Qualification Requirements: Approval for a consolidation loan depends on creditworthiness and income, which may be restrictive for those with poor credit or unstable finances.

  • May Extend Debt Period: While monthly payments might be lower, the loan term could be longer, potentially leading to paying more interest overall.

  • Fees and Costs: Some lenders charge origination fees or early repayment penalties that can increase the cost of consolidation.

  • Risk of Accumulating More Debt: Without disciplined budgeting, individuals might continue to accumulate new debt while repaying the consolidation loan.

  • Secured Loan Risks: If the consolidation loan is secured against assets like a home or car, failure to repay can result in losing those assets.

Careful consideration and financial planning are key to determining if a debt consolidation loan is the right choice for your debt management strategy.

  1. What is a Consumer Proposal in Canada?

  2. Bankruptcy in Canada: Process, Pros & Cons

  3. Debt Settlement in Canada: Is It Worth It?

  4. Debt Management Explained

  5. CRA Tax Debt Relief Options

  6. Student Loan Forgiveness and Repayment Assistance in Canada

  7. Debt Relief Programs by Province

  8. Credit Counselling vs Debt Relief: Key Differences

  9. How to Avoid Debt Relief Scams in Canada

  10. Debt Relief vs. Debt Consolidation: Which is Right for You?