How to get out of debt in Canada

Posted on 31 August 2021

Written by Chris Galea

There is nothing worse than struggling with overwhelming debt and not knowing what to do next. It is all too easy to spiral into owing money, and often the situation can quickly escalate into payday loans and credit card debt to make ends meet. No matter how bad your debt, it is always possible to find debt relief. Debt relief options including debt consolidation loans, consumer proposals, and bankruptcy can all help to reduce or clear your debt. In Canada, Licensed Insolvency Trustees are the only professionals legally able to file consumer proposals and bankruptcy. This makes them a good first point of contact when it comes to dealing with your debt and taking the best steps for your financial situation. In the following article, we explain how to get out of debt and begin a fresh financial start.

Understand the extent of your debt

Before you can truly decide on the best form of debt relief for you, you need to understBefore you can truly decide on the best form of debt relief for you, you need to understand how much debt you actually have. This can seem intimidating, but it is the first step to dealing with your debt and finding an appropriate solution. The sooner you do this, the better as it means you can get out of debt faster. By laying out each of your accounts, you can gain a quick view of where the majority of your debt is coming from, and what is causing it to spiral. In this step, it is important to record each and every source of debt and income to provide an honest picture. Once you know how much debt you have, you can then understand the repayments you are able to make comfortably each month. Creating a budget will likely help to keep any spending and saving on track.

Manage your debt

IIt is likely that you are paying more interest than necessary when it comes to your debt. By looking at how to best handle and structure your debt, it could be that you save yourself a lot of money in the long run. It may be, for instance, that you can condense some unsecured debts to lower your interest rate and make repayments quicker. This is where a debt consolidation loan may be a good option for you. Other quick wins include switching credit cards to a lower interest rate, or using any equity you may have in your property to consolidate debts and lower your monthly repayments. It is a good idea to speak to an experienced Licensed Insolvency Trustee to see how you can reduce your debt in this way.

Work out your repayment method

Once you have a steer on the organization of your debt, it is important to consider how you will best repay it in the quickest and most feasible manner. Often, it makes most sense to work on paying off the debt with the highest interest rate first, before moving onto the next highest, and so on. For others, it may be preferential to pay off the smallest debt first in order to feel a sense of achievement, before moving onto the next smallest debt with a positive knock-on effect. Using the 50/30/20 rule from your pay cheque can be beneficial in learning how to get out of debt too. This means keeping aside at least 50% for essentials; 30% for desirables, and 20% for debt repayments.

Consider your debt relief options

If you are still unsure how to get out of debt, it may be time to consider a form of debt relief. Everybody has unique financial circumstances, and therefore different forms of debt relief are appropriate for different individuals. Each has its own advantages and disadvantages. At Spergel, our experienced Licensed Insolvency Trustees will discuss your financial situation with you. They will then advise you as to the best form of debt relief for your situation to help you understand how to get out of debt. Here are the top forms of debt relief in Canada:

Credit counselling

For smaller debts, credit counselling can be an ideal way of learning how to get out of debt. Typically, not-for-profit credit counselling agencies or Licensed Insolvency Trustees can assist with debt relief by offering professional help and advice on your financial situation. They can offer debt management plans to condense your debts and lower your interest rate overall. You will discuss your financial circumstances and the best way of reducing your debt, making it perfect if you are feeling overwhelmed and unsure of what to do. If your debt cannot be resolved through credit counselling, another form of debt relief like a debt consolidation loan may be more appropriate.

Debt consolidation loan

When it comes to getting out of debt, a good choice for many is a debt consolidation loan. If you have multiple different debts, including credit card debts and loans, you can condense them by taking out a new debt consolidation loan. It condenses your separate debts into one more manageable monthly payment. As well as simplifying your debts to relieve stress, another advantage of a debt consolidation loan is that most often, your interest rate is lowered. Typically, multiple smaller debts will have higher interest rates independently. If you are interested in a debt consolidation loan, it is a good idea to first speak to an experienced Licensed Insolvency Trustee for advice on the best debt consolidation loan to apply for.

Debt settlement

Before exploring the legal forms of debt relief (consumer proposals and bankruptcy), some debtors decide to attempt a debt settlement. A debt settlement is an informal agreement made with your creditors. Within this agreement, you will discuss the terms of your debt, working to negotiate a revised amount and/or deadline on your debt repayments. Debt settlements are never guaranteed, and most often creditors will expect high upfront fees. It often works best if you have a lump sum available to give to creditors. Be warned that sometimes debt settlements can end in situations where a consumer proposal or bankruptcy is required afterwards anyway.

Consumer proposal

In Canada, a consIn Canada, a consumer proposal is a legal form of debt settlement regulated by the Bankruptcy and Insolvency Act. It must be administered by a Licensed Insolvency Trustee, who will work with you to establish a reasonable monthly repayment to your creditors. They will then negotiate with your creditors to agree a deal, and any remaining debt you have will be cleared. In fact, with a consumer proposal, you can reduce your debts by up to 80%. Other advantages of a consumer proposal include avoiding bankruptcy, a stay of proceedings, and the fact you can keep your assets. At Spergel, our experienced team of Licensed Insolvency Trustees has helped over 100,000 Canadians become debt free. Should you choose to file, with us you will receive your very own trustee to walk you through each and every step of the process.


Bankruptcy is the legal process of wiping any overwhelming debts that you cannot pay on time. In line with the Bankruptcy and Insolvency Act, bankruptcy must be administered by a Licensed Insolvency Trustee. Any of your unmanageable debts will be cleared by assigning any non-exempt assets you have to a bankruptcy trustee, who will use them towards your debt repayment. As well as clearance of your unsecured debt, other advantages of bankruptcy include a stay of proceedings, and the prospect of a fresh financial start. Depending on your province of residence, you are also entitled to keep some of your assets depending on provincial exemptions.

How to get out of debt

Each of the above forms of debt relief has its own advantages and disadvantages. The best thing to do is speak to a Licensed Insolvency Trustee who will be able to discuss your financial situation with you, and help to inform you how to get out of debt. They will work through each form of debt relief with you, and advise you as to your best option. At Spergel, we will work with you to resolve your debts, whether they are pay day loans, credit card debts, or other forms of debt. It is easy to tell if you need debt relief advice if you are spending more than your income, are reliant on credit cards, or are borrowing money to get through each and every month. It could even be that you are being threatened with a wage garnishment, or are being harassed by collection calls. By reaching out today, you can begin the process of getting out of debt.

If you need advice on how to get out of debt, book a free consultation with the friendly team at Spergel. Our experienced Licensed Insolvency Trustees will walk you through your options and help to advise you on the best form of debt relief for you. Your journey to a fresh financial future begins here – you owe it to yourself.


Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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