Debt Consolidation in Canada: Options and Steps

As the cost of living rises in Canada, more households are relying on credit cards to cover everyday expenses. By Q4 2024, total credit card debt in Canada topped $124 billion, while delinquency rates rose even as average monthly card spending fell, according to TransUnion. Credit card balances can be costly—annual interest rates commonly range from about 20% to 27%—and balances grow quickly if not paid off. This guide explains six practical debt consolidation strategies, outlines their benefits and drawbacks, and helps you decide which approach may suit your situation.

What is debt consolidation?

Debt consolidation simplifies repayment by combining two or more debts into a single monthly payment. Rather than tracking multiple due dates, balances and interest rates, consolidation lets you focus on one payment—often at a lower interest rate or with clearer terms.

Which consolidation options are available to you depends largely on the kinds of debt you have. The two main categories are secured and unsecured debt:

• Secured debt: Loans backed by an asset, such as a mortgage or auto loan. If you default, the lender can claim the asset used as collateral.
• Unsecured debt: Credit that does not require collateral, like credit cards, medical bills, student loans (in some cases), payday loans and unpaid utilities. These are the most common candidates for many consolidation options.

Six types of debt consolidation strategies

Below are the most common debt consolidation strategies available in Canada, with a brief description of how each one works and who it’s best suited for.

1. Credit card balance transfer: Move existing balances to a new credit card offering a lower introductory interest rate. This can reduce interest costs if you can pay down the balance during the promotional period. Watch for transfer fees and be aware that the low rate may be temporary—read the card’s terms carefully.
2. Debt consolidation loan: A personal loan from a bank or lender used to pay off high-interest unsecured debts. You then repay the loan with a single monthly payment. These loans typically target unsecured balances and often carry interest rates in the mid-single to low-double digits. They may not be useful for secured debt like mortgages, which generally have lower rates.
3. Debt consolidation program (DCP): Run by accredited, typically non-profit, credit counselling agencies, a DCP combines unsecured debts into one monthly payment and negotiates lower interest rates with creditors. Only unsecured debts are usually included. A DCP also provides ongoing budgeting support and debt-management guidance.
4. Home equity loan: If you own a home, you may be able to borrow against its equity. Lenders typically allow borrowing up to a percentage of the home’s appraised value minus any outstanding mortgage. Home equity loans can offer lower interest rates—but they put your property at risk if you miss payments.
5. Reverse mortgage: For homeowners age 55 and older, a reverse mortgage (equity release) lets you access a portion of your home’s value while retaining ownership. The loan becomes repayable if you sell the home, move out permanently or pass away. This option is best evaluated carefully with professional advice.
6. Line of credit: An unsecured or secured line of credit can be used to pay off higher-interest debts such as credit card balances. A secured line—like a home equity line of credit (HELOC)—typically offers lower rates but uses your home as collateral, so disciplined repayment is essential.

Do I qualify for debt consolidation services?

Eligibility depends on your assets, the types of debt you carry, your credit score, income and monthly expenses. As a general rule, if your unsecured debt is more than about 20% of your income, it’s worth consulting a non-profit credit counsellor for tailored advice.

Credit counsellors recommend consolidation programs for people who are struggling to reduce balances on their own. If you’re finding it hard to make progress on debt repayment and can’t tackle balances aggressively, a debt consolidation program can be a viable option to consider.

People from many income levels and backgrounds benefit from a confidential session with a certified non-profit credit counsellor. A counsellor will review your finances, explain your options and help you choose a practical, tailored solution. If you prefer an automated assessment, some agencies also offer AI-driven tools that can provide a full debt analysis.

Benefits of a non-profit credit counselling agency

Non-profit credit counselling agencies typically offer a range of services at low or no cost, including one-on-one counselling, debt consolidation programs, and financial education sessions. They can help negotiate with creditors, design an affordable repayment plan and provide tools to improve money management.

When choosing an agency, check client reviews and industry credentials—look for membership in recognized associations and clear, upfront information about fees. Reputable non-profit agencies are transparent about costs and services.

How much do credit counselling agencies charge?

Non-profit credit counselling agencies usually provide basic counselling and financial education free of charge. For structured programs such as a debt management plan or debt consolidation program, agencies may charge modest fees to cover administration. For-profit firms often charge higher fees, so verify costs before enrolling.

Advantages of a debt consolidation program

A DCP can offer several tangible benefits:

• Work directly with a certified counsellor who negotiates with creditors on your behalf
• Combine multiple unsecured debts into one payment and often secure lower interest rates
• Simplify your finances with a clear repayment schedule and known completion date
• Make payments more affordable and set up automated transfers
• Reduce or stop creditor collection calls while enrolled in the program
• Potentially avoid more drastic options like a consumer proposal or bankruptcy
• Receive ongoing debt management coaching and financial education to support long-term wellness

Disadvantages of debt consolidation programs

There are trade-offs to consider. Participating in a DCP is recorded on credit reports using specific status codes; accounts included in the program generally receive an R7 rating, which remains until the program is completed. Many people who enter a DCP already have weakened credit scores, and completing the program typically leads to gradual improvement.

While enrolled, you’ll usually be required to stop using unsecured credit cards. That can be a helpful discipline if you’ve maxed out cards, but you may need a secured credit card for ongoing access to credit; secured cards require a security deposit as collateral.

Receive professional advice

No matter your debt level, options exist to help you regain control. Speaking with a non-profit credit counselling agency can provide free, confidential advice and a debt solution plan tailored to your circumstances.

This article was written by Himank Bhatia, a credit counsellor and financial coach with Credit Canada, the country’s first and longest-standing credit counselling agency. For more than 50 years, Credit Canada has helped Canadians reduce debt and restore financial stability through education and debt resolution. If you are struggling with debt, you can contact Credit Canada for free credit counselling services.

Read more from Credit Canada:

• Should I use retirement savings to pay off credit card debt?
• How to calculate your debt-to-income ratio—and why you should know this number
• What happens to your debt when you die
• Can debt collectors discuss your debt with your family members?
• How long do debt collectors try to collect in Canada?