What is the best way to pay off debt in Canada?

The two most popular methods are the debt avalanche (pay highest-interest debt first to minimize total interest) and the debt snowball (pay smallest balance first for psychological wins). The avalanche saves more money; the snowball keeps motivation high. Pick the one you will stick with.

Can I consolidate my debt in Canada?

Yes. Options include debt consolidation loans (combine multiple debts into one lower-rate loan), balance transfer credit cards (0% promo rate for 6-12 months), home equity lines of credit, and consumer proposals (legal debt reduction through a Licensed Insolvency Trustee).

How long does a consumer proposal stay on your credit?

A consumer proposal stays on your credit report for 3 years after you complete it (or 6 years from when it was filed, whichever comes first). Bankruptcy stays on for 6-7 years after discharge for a first bankruptcy.

What is the difference between the debt avalanche and debt snowball methods?

The debt avalanche prioritizes paying off the highest-interest debt first, which minimizes total interest paid. The debt snowball prioritizes the smallest balance first, giving you quick wins to stay motivated. Mathematically, the avalanche saves more money, but the snowball has a higher completion rate because of the psychological boost from eliminating debts quickly.

When should I consider a consumer proposal instead of paying off debt myself?

Consider a consumer proposal when your unsecured debts exceed what you can realistically repay within 5 years, or when debt payments consume more than 40% of your take-home income. A consumer proposal allows you to settle debts for 20–50% of what you owe. Consult a Licensed Insolvency Trustee for a free assessment of your options.

Debt Payoff Guide Canada 2026: How to Get Out of Debt & Stay Out

Debt is the biggest obstacle to building wealth. The average Canadian household carries over $20,000 in non-mortgage debt. This guide covers every strategy, tool, and resource for getting out of debt in Canada — from DIY payoff methods to professional help.

How Much Debt Do Canadians Carry?

Debt Type	Average Balance
Mortgage	~$300,000+
Home equity line of credit	~$70,000
Car loan	~$25,000
Student loans	~$25,000
Credit cards	~$4,000
Personal line of credit	~$30,000

If you’re carrying non-mortgage debt, you’re not alone — but having a plan makes all the difference.

Step 1: Know What You Owe

List every debt: creditor, balance, interest rate, minimum payment. This is your debt inventory. Use our Debt Payoff Calculator to see your timeline.

Step 2: Choose Your Payoff Strategy

Debt Avalanche vs. Debt Snowball

Method	How It Works	Best For
Avalanche	Pay minimums on everything, throw extra at highest-rate debt	Saving the most money on interest
Snowball	Pay minimums on everything, throw extra at smallest balance	Staying motivated with quick wins

Detailed comparison: Debt Avalanche vs. Snowball

Both methods work. The best method is the one you’ll stick with consistently.

Step 3: Consider Consolidation

If you have multiple debts at high interest rates, consolidation can simplify payments and lower your rate.

Consolidation Option	Typical Rate	Best For
Debt consolidation loan	7%–15%	Multiple debts, good credit
Balance transfer card	0%–3% promo	Credit card debt under $10K
Home equity line of credit	Prime + 0.5%–1%	Homeowners with equity
Consumer proposal	N/A (negotiate reduction)	Debt exceeding ability to pay

How to consolidate: How to Consolidate Debt in Canada

Best consolidation loans: Best Debt Consolidation Loans

Types of Debt

Secured vs. Unsecured Debt

Type	Examples	Risk
Secured	Mortgage, car loan, HELOC	Lender can seize the asset
Unsecured	Credit cards, personal loans, student loans	No collateral, but collections/legal action possible

Full breakdown: Secured vs. Unsecured Debt

Priority debts: Which Debts to Pay First

Loans

Car Loans

Lines of Credit

Student Loan Debt

Student loan debt has its own rules in Canada — interest rates, repayment assistance programs, and forgiveness options vary by province.

Provincial Student Loans

When You Can’t Pay: Professional Help

Credit Counselling

Non-profit credit counselling agencies can help you create a budget, negotiate with creditors, or set up a debt management plan (DMP).

Full guide: Credit Counselling Canada

Debt Relief & Negotiation

Insolvency: Consumer Proposals & Bankruptcy

When debt is unmanageable, there are legal options:

Option	What Happens	Impact
Consumer proposal	Negotiate to pay a portion of debt over up to 5 years	Credit report: 3 years after completion
Bankruptcy	Debts discharged, some assets may be seized	Credit report: 6–7 years after discharge

Leaving Canada with Debt

What happens: What Happens If You Leave Canada with Debt

Debt & Mental Health

Financial stress is real. Debt can affect sleep, relationships, and mental health. If you’re struggling, know that there are free resources available.

Read more: Debt and Mental Health Guide