If you’re in debt, it can be overwhelming trying to understand the best path forward. The reality is that debt looks different for everyone — and so does the right solution. The good news? There are more tools and strategies available than ever before.
In 2025, several major trends continue to push Canadians deeper into debt:
- Persistent inflation is keeping groceries, gas, and household essentials at elevated prices.
- Cost-of-living pressures, especially in major cities, are reducing how much households can realistically allocate to debt repayment.
- Rising mortgage rates and mortgage renewals at higher interest levels are consuming a larger portion of monthly income.
- The growth of Buy Now, Pay Later (BNPL) services has created a new wave of fragmented, hard-to-track debt for many households.
- Stagnant wages in many sectors are adding to the squeeze, leaving people with less room to absorb unexpected expenses.
Against this backdrop, choosing the right debt management strategy matters more than ever. Below, we explain several effective approaches and how to determine which one best fits your situation.
Effective Debt Management
You might be wondering, “What exactly is a debt strategy?”
A debt strategy refers to any structured approach that helps you pay down or eliminate your debt. This can range from managing cash flow more effectively to taking advantage of debt consolidation or exploring insolvency options.
An effective strategy is one that is realistic, sustainable, and tailored to your unique circumstances — allowing you to become debt-free without overwhelming your daily life or jeopardizing your long-term financial stability.
Ways to Manage Debt
For some, the best personal debt management strategy might be to simply readjust their cash flow.
That could mean creating a budget, eliminating unnecessary spending, applying for extra money through government benefits or tax credits they may qualify for, and/or decreasing certain monthly costs. Then, taking any extra funds they created in their budget to pay off their debts one by one until they’re all taken care of.
But for some people, adjusting their cash flow isn’t enough (or in some cases, isn’t even an option) to eliminate their debts. They may need a more hands-on approach to debt management that requires a bit more support, such as debt consolidation or insolvency.
Below, we explore three main approaches: debt consolidation loans, debt consolidation programs, and insolvency.
Debt Consolidation Loans
A debt consolidation loan combines multiple unsecured debts into one new loan. With good credit, this can be a smart solution — particularly if the interest rate you receive is lower than what you’re currently paying across multiple debts.
However, securing a consolidation loan with bad or damaged credit can be challenging, and offers from high-interest lenders may end up costing you more over time.
Here’s a quick overview of the pros and cons of debt consolidation loans:
Pros:
- Simplifies repayment by reducing multiple bills to one monthly payment.
- Potential to save on interest if you qualify for a low-rate loan.
Cons:
- Requires qualification. Low credit scores can make approval difficult.
- Risk of accumulating more debt if old credit accounts aren’t closed or spending habits don’t change.
- Loan types and terms can be confusing for many borrowers.
Debt Consolidation Programs (DCPs)
A Debt Consolidation Program — also known as a Debt Management Program (DMP) — is one of the strongest options for people struggling with high-interest unsecured debt and low credit scores.
A certified Credit Counsellor negotiates with your creditors to:
- Reduce or eliminate interest
- Combine unsecured debts into one affordable monthly payment
- Stop collection calls
- Provide ongoing financial education and support
Some of the pros and cons of a DCP include:
Pros:
- No credit score requirement, making it accessible for many.
- Interest significantly reduced or eliminated, allowing faster repayment.
- Stops collection calls almost immediately.
- Professional guidance and support throughout the program.
Cons:
- Only unsecured debts can be included (such as credit cards, lines of credit, personal loans, payday loans, and collection accounts).
- Refrain from applying for additional credit while participating in the program.
- Credit accounts are closed permanently, which results in an initial dip in credit score and an R7 rating on your report; however, most clients see their scores begin to recover shortly after completing the program.
“Our counsellors often work with clients who have a low credit score but also significant equity in their home. Recently, a client was declined for a consolidation loan due to their credit, yet they also didn’t qualify for most insolvency options because of their home equity. They felt stuck — unable to access a loan and ineligible for a consumer proposal or bankruptcy. In cases like this, a DCP is typically the best solution, allowing us to negotiate reduced interest, combine their unsecured debts into one affordable payment, and help them move forward without putting their home at risk.”
Insolvency
When debt becomes unmanageable, insolvency may be the most realistic solution. Consumers work with a Licensed Insolvency Trustee who administers either a consumer proposal or a bankruptcy filing.
Insolvency isn’t typically the first debt management solution most people consider. However, it can be the best option if you are truly drowning in debt and cannot find another way out. Some pros and cons of filing a consumer proposal or declaring bankruptcy include:
Pros:
- You may not need to repay 100% of what you owe.
- Offers the fastest route to becoming debt-free for severe debt situations.
Cons:
- Fees apply, which the trustee will outline upfront.
- Public record of your filing.
- Potential loss of certain assets in bankruptcy.
- Long-term credit score impact (up to 6–7 years after discharge).
- Can affect future employment or lending opportunities.
|
Strategy |
Best For |
Credit Impact |
Pros |
Cons |
|
Debt Consolidation Loan |
Good credit; stable income |
Depends on payment behaviour; typically minimal if managed well |
One payment; lower interest; simplifies debt |
Requires good credit; risk of accumulating new debt; terms can be confusing |
|
Debt Consolidation Program (DCP) |
Low credit score; high-interest unsecured debt |
R7 during program and 2 years after completion |
Reduced interest; one payment; stops collection calls; no credit eligibility requirement |
Credit cards closed permanently; not applying for new credit during the program; unsecured debt only |
|
Insolvency |
Severe debt; unable to meet obligations; debts with potential legal actions |
R9 during process; remains for 3–7 years |
May reduce total debt; fastest path to debt freedom |
Public record; fees; asset loss (bankruptcy); future borrowing challenges |
Common Misconceptions About Debt Management
Many clients begin their debt journey with misunderstandings that can prevent them from choosing the right solution.
Misconception #1: “All debt solutions impact my credit the same way.”
In reality, credit impacts vary widely — from no impact to temporary R7 ratings to long-term R9 notations.
Misconception #2: “All debt programs fall under the Insolvency Act.”
Many people are surprised to learn that nonprofit DCPs are not insolvency products and operate completely differently.
Misconception #3: “If I don’t qualify for one solution, I won’t qualify for any.”
Each option has unique criteria. Being ineligible for one does not mean you’re out of options.
“If you can’t realistically repay your debt within a similar timeframe to a traditional consolidation loan, it’s time to speak with a professional. Consulting a non-profit Credit Counsellor doesn’t commit you to anything — but it does open the door to better, more sustainable solutions that you may not be aware of.”
Key Debt Warning Signs
One of the most common warning signs that often gets normalized is living paycheque to paycheque, and using credit for survival. As one of our counsellors puts it:
“When you have to reach for your credit card to buy essentials like bread, milk, or gas because your bank account is at zero, that is a major warning.”
Without any financial buffer, even a small unexpected expense can cause missed payments or reliance on more credit, quietly deepening the debt cycle over time. Credit should be a tool for convenience, not a lifeline for survival. If you are using debt to bridge the gap between paychecks, the cycle is starting.
Which Debt Management Strategy Is the Best?
There is no universal solution. The right approach depends on:
- Your income
- Your credit score
- Your assets and equity
- Your monthly obligations
- Your long-term goals
Before deciding, it’s helpful to speak with a non-profit Credit Counsellor who can offer free, unbiased advice and explain all your available options.
Reach out today for free debt help and start moving toward a debt-free future with confidence.
