How to Get Out of Debt: A Complete Guide for Canadians

For many Canadians, the weight of debt is more than just a numbers game; it's about not spending more than you earn. The emotional toll of owing money can affect your sleep, your relationships, and your sense of financial and life security.

What makes it harder is that debt today isn't always the result of poor decisions. Rising grocery prices, higher housing costs, job loss, and health emergencies push people into debt every day, regardless of how responsible they are. In early 2026, Canadian households carried the largest debt burden in the G7, with total household debt at $3.2 trillion.

There are real strategies and support to help Canadians get out of debt. This guide walks through eight of them, from creating a sustainable spending plan to formal debt relief programs, to help you choose the right path.

What Is the Best Way to Get Out of Debt?

There's no single answer that works for everyone to get out of debt. The best way forward depends on how much you owe, the types of debt you're carrying, your income stability, and how long you've been struggling. For example, the recommended strategies to get out of debt will differ for someone with a full-time job, mixed debts, and a history of living beyond their means, compared to a contract worker with an irregular income who has struggled to pay their bills for the past four months.

Every debt repayment plan starts with three foundational pieces:

1. Knowing what you owe
2. Having a budget you can stick to
3. Choosing a repayment approach that fits your situation

From there, some people choose to manage debt on their own. Others may need the structure of a formal debt relief program.

Step-by-Step: How to Get Out of Debt

While every situation is different, these five steps will form the basis of your successful debt repayment plan.

1. Understand Exactly What You Owe

Start by listing every debt you carry, including the creditor, the current outstanding balance, the interest rate (APR), and the minimum monthly payment.

If you are not sure how to find these details, you can pull a free copy of your credit report through Equifax or TransUnion.

2. Create a Realistic Budget

Overly restrictive budgets often trigger a "rebound" in which people reach for credit to compensate for feelings of deprivation. Using credit can feel like a quick way to reclaim comfort or control, leading to increased spending and debt.

That’s why budgeting isn’t just about spending less, but about creating a plan that supports sustainable spending and accounts for your actual life. This includes budgeting for small recurring costs that quietly drain cash flow, such as unused subscriptions, high cellphone plans, and frequent convenience purchases.

One thing many people get wrong when creating a sustainable spending plan is forgetting to set aside money for your emergency fund or irregular expenses while paying off debt. Mike Bergeron, Counselling and Client Services Manager at Credit Canada, says that “without a savings buffer, unexpected life emergencies often force people back into using credit, perpetuating the cycle."

Even a small emergency fund of $500 to $1,000 can keep a car repair from sending you back to square one. Our free Budget Planner can help you build a financial plan that includes saving for your emergency fund and meeting your other financial obligations, including paying down debt. 

3. Choose a Debt Repayment Strategy

Once you have an inventory of what you owe and a sustainable spending plan, you need a method for paying off your debt.

There are two main strategies we recommend. Your choice will depend on the method that best keeps you motivated throughout the process:

Snowball Method

Pay off the smallest balance first, regardless of the interest rate. Make at least the minimum payments on everything else, then roll the freed-up payment into the next-smallest debt. This method works because it creates momentum. Paying off even one account completely shifts how you feel about the whole process.

Avalanche Method

Focus all extra payments on the highest-interest debt first, then move down the list. This strategy is mathematically efficient because it limits the total interest you pay over time. It's the right choice for people motivated by the bottom line rather than quick wins.

Your choice of Snowball vs. Avalanche methods will depend on your personal situation. Usually, the one you'll actually stick with is the right one. Our free Debt Calculator can project your payoff timeline for each approach.

4. Reduce Interest Where Possible

Most Canadians don't realize their credit card interest rate is negotiable. Banks don't advertise it, but many will lower your rate if you ask, especially if you have a history of on-time payments.

Tell your bank you've been a loyal customer and you've received a lower-rate offer elsewhere. If the front-line agent says no, ask to speak with the Retention Department. These teams are specifically authorized to offer rate reductions. If negotiation doesn't work, a balance transfer to a 0% promotional card (typically six to twelve months) can give you a window to pay down the principal.

5. Optimize Your Cash Flow

Look for cash flow leaks: small, recurring costs that add up unnoticed. Audit your subscriptions and recurring payments (like wireless plans and app subscriptions) to see if you can get a better deal or cancel them entirely. Any extra cash you free up can go directly toward debt, reducing interest and shortening your repayment timeline.

Debt Relief Options in Canada Explained

When DIY methods aren't enough, formal debt relief programs offer structured, legally protected paths forward.

Debt Consolidation Loans

A debt consolidation loan combines multiple debts into a single loan from a single lender, usually at a reduced interest rate. Although this can be helpful for high-interest debts like credit cards, they are generally not available to those with bad credit or low income.

Debt consolidation loans are offered by banks, credit unions, and finance companies.

Credit Counselling

A certified Credit Counsellor gives you a judgment-free review of your finances, helps you build a personalized sustainable spending plan, and maps out your options based on your unique situation and goals. Their services are offered free of charge through non-profit organizations, such as Credit Canada.

To find a reputable credit counselling organization:

• Look for non-profit agencies
• Research their Better Business Bureau (BBB) rating and reviews
• Ensure any fees are fair and transparent
• Ask if they have a monthly administrative fee
• See what educational resources they have available for free
• Avoid those who claim the infamous “quick fix”

Credit counselling through Credit Canada is free and confidential. Contact us today to speak with a credit counsellor right away.

Debt Consolidation Programs (DCP)

A Debt Consolidation Program (DCP, often referred to as a Debt Management Plan or DMP) is a voluntary arrangement where your credit counsellor negotiates with your creditors to reduce or stop the interest on your existing debt. You make one monthly payment to the non-profit credit counselling agency, and they forward it to your creditors on your behalf. A DCP typically runs three to five years and repays 100% of your outstanding balance. The credit impact is an R7 rating and a note will be added to your record saying you’re currently paying off your debts are being paid through credit counselling or a consumer proposal. This will stay on your report for two years after completing the program.

Learn how a Debt Consolidation Program works.

Consumer Proposals

A consumer proposal is a form of insolvency and a legally binding agreement administered by a Licensed Insolvency Trustee (LIT). Your LIT will negotiate on your behalf to reduce the amount owed on all eligible unsecured debts, based on affordability. This can often lower your debts up to 80%, to be repaid within a maximum of five years. The moment it's filed, a Stay of Proceedings halts collection calls, lawsuits, and wage garnishments. You will also receive an R7 credit rating, which stays on your report for three years after completing the proposal.

Learn more about how consumer proposals work.

Bankruptcy

Bankruptcy eliminates most unsecured debts and is recommended only when no other debt-resolution path is an option. You don't automatically lose everything, however. Provincial exemptions protect essential assets like a basic vehicle, household furniture, and tools of your trade. Bankruptcy usually runs for 9-21 months, however a first time filer with no surplus income, they can typically discharge their bankruptcy in nine months.

Learn more about personal bankruptcy in Canada.

How to Choose the Right Debt Solution

Many Canadians find that credit counselling and a sustainable spending plan can resolve their unsecured debt. However, if your debt is so much that you can’t realistically repay your total unsecured debt within five years through budgeting and interest reduction, many credit counsellors will recommend a more formal program to get out of debt.

Bergeron notes that the right solution also depends on your goals: "The key consideration is the person's overall goal. Are they comfortable with a short-term solution that has a longer-lasting impact, or do they prefer a longer-term approach that allows them to reach their goal in a shorter time frame?"

A certified Credit Counsellor will walk you through your options and help you match the right solution to your situation.

Common Mistakes to Avoid When Getting Out of Debt

"One of the most common warning signs is a recurring pattern where debt decreases for a few months, only to gradually rise again due to mismanagement or misuse of credit,” Bergeron says.

In these cases, a formal DCP or consumer proposal can break the cycle and provide the structure needed to support a debt-free life. Look at your financial habits and debt management activities to avoid these common debt management mistakes:

• Closing old accounts too quickly. Closing a paid-off card can shorten your credit history and raise your credit utilization ratio, both of which lower your credit score. Keep it open unless there's a strong reason not to.
• Using your RRSP or TFSA as a quick fix. RRSP withdrawals are taxed as income that year, often at a rate higher than the credit card interest you'd save. Get advice before touching retirement savings. Your TFSA could be used to repay debt, but you would lose its tax-sheltered growth and contribution room.
• Ignoring the bank's right to offset. When you’ve missed payments or if you are entering DCP, your bank can legally withdraw funds from your chequing account to cover a debt held at the same institution, without asking. If you're entering a DCP or filing a consumer proposal, move your banking to a different financial institution first.
• DIY-ing formal legal processes. Negotiating a settlement on your own, without the protections of the Bankruptcy and Insolvency Act, can leave you exposed to lawsuits. When the situation has moved into formal proceedings, get professional help.

If these common mistakes and patterns sound familiar, it's not always a matter of willpower. It's a signal that more structure is needed.

How Long Does It Take to Get Out of Debt?

It depends on how much you owe and which approach you take. Many people who use the debt Snowball or Avalanche method to pay off $5,000 to $10,000 in credit card debt become debt-free within two to three years with focused repayment.

A DCP, on the other hand, typically runs for three to five years. A consumer proposal can last up to five years, but with significantly reduced total repayment. Bankruptcy typically takes 9 months for a first-time filer.

The biggest variable is interest. Every month you delay, more of your payment goes to the lender rather than the balance. Starting sooner almost always shortens the repayment timeline.

When to Seek Help for Debt

Some warning signs are obvious: collection calls, maxed-out credit cards, missed payments. Others are more subtle: being stuck in debt despite regular payments, relying on payday loans for ordinary expenses, or losing sleep over bills.

Research shows that people dealing with financial stress are twice as likely to report poor overall health and four times as likely to suffer from sleep problems.

Bergeron offers his advice if you’re feeling overwhelmed with your debt: “Take a breath. You're not alone anymore, and together we'll review a clear path forward."

Reaching out earlier means more options and a faster resolution. You can start with a free, no obligation consultation with a certified Credit Counsellor at Credit Canada. As a non-profit organization, Credit Canada offers free credit counselling services.

Your Next Step Toward Financial Freedom

Getting out of debt in Canada starts with understanding what you owe, building a sustainable spending plan you can live with, and choosing a manageable repayment method. Others find debt repayment success with a Debt Consolidation Program, a consumer proposal, or another form of structured debt relief.

The longer the debt sits, the more expensive it becomes in interest, missed opportunities, and the social-emotional toll it takes day to day. Taking one step today changes that.

Start tackling your debt by contacting us at 1 (800) 272-2272. If you’d rather explore your options on your own first, you can chat with Mariposa, Credit Canada's free AI-powered debt management agent. Whatever path you choose, we’re here to support your debt-free journey.