Struggling with debt can take a serious toll on your finances and overall well-being.
Many Canadians search for free government grants to help manage or eliminate what they owe, but it’s important to understand what support is truly available.
While there are no direct government grants to pay off personal debts, there are legitimate debt relief programs that operate under federal regulations.
In this guide, we’ll explore the real options Canadians can access, how these programs work, and how they can help you get back on track with confidence.
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Are there government debt relief programs in Canada?
If you’re overwhelmed by debt, you might be searching for government debt forgiveness programs or loans to pay it off.
It’s important to understand that the Canadian government does not directly offer grants to eliminate personal debt.
Any program or service claiming to be a “government debt relief grant” typically operates within federal rules and regulations but is not directly issued by the government.
That said, there are federally regulated debt relief solutions available to Canadians. These include the consumer proposal and bankruptcy, both governed by the Bankruptcy and Insolvency Act and administered by Licensed Insolvency Trustees.
These programs can reduce your total debt, stop collection calls, and provide a structured path to financial recovery. Learn more about debt forgiveness here.
Examples of government debt relief options in Canada
While there are no free Canadian government grants to pay off personal debt outright, there are legitimate debt relief programs regulated or supported by the federal or provincial governments.
These programs aim to provide support in specific circumstances, whether you’re dealing with student loan debt, running a small business, or exploring formal options like a consumer proposal. Below are a few examples:
Canada student loan forgiveness program
If you’re struggling with student loan debt, the Canada Student Financial Assistance Program offers two important options:
- The Repayment Assistance Plan (RAP) adjusts your payments based on income, ensuring you only pay what you can afford.
- The Repayment Assistance Plan for Borrowers with Disabilities (RAP-D) is similar to the RAP, but only students with disabilities are eligible. The plan can lower your student loan repayments for a period of 6 months and also allows you to submit disability-related expenses that may help you lower costs. In certain circumstances, you may even qualify for no payments at all.
- The Canada Student Loan Forgiveness Program is available to eligible professionals, like doctors and nurses, working in underserved rural or remote communities. This program may forgive a portion of your government student loans after meeting specific service requirements.
Consumer proposal
The consumer proposal is a legitimate debt relief program administered by a Licensed Insolvency Trustee (LIT). It allows you to consolidate your unsecured debts into affordable monthly payments, while offering partial repayment of what you owe, often significantly less than the full amount.
This option is a legally binding agreement between you and your creditors. Once the majority of your creditors (by dollar value) accept the proposal, all are bound by it. Collection calls and legal actions like wage garnishments stop immediately.
Consumer proposals typically last up to five years, and unlike bankruptcy, they allow you to retain your assets. They’re ideal if you have a steady income but need a manageable path out of debt without going bankrupt.
How do I check if I’m eligible for debt support from the federal government?
If you’re exploring government programs and free grants to help manage your debt, it’s important to understand that each program comes with specific eligibility requirements. These criteria may be based on your income level, employment status, type of debt, location, or whether the debt is related to student loans, personal insolvency, or other debts.
Because eligibility varies from one program to another, it’s essential to review each initiative carefully. Most federal and provincial programs outline requirements clearly on their official websites. However, navigating these options alone can feel overwhelming.
To make sure you’re pursuing the right solution, it’s wise to get advice from a Licensed Insolvency Trustee (LIT). A LIT can walk you through available programs, confirm your eligibility, and help you access formal debt relief options that are regulated under Canadian law.
Other debt relief options available in Canada
When you’re overwhelmed by debt, it’s important to know that alternative debt repayment options exist beyond government grants. Canada has a variety of legitimate, regulated solutions that can help individuals regain financial stability.
Credit counselling
Credit counselling is an educational and supportive service offered through a non-profit credit counselling agency. You’ll meet with a certified credit counsellor to review your financial situation and explore budgeting strategies, debt repayment options, and other tools to regain financial health.
While credit counselling isn’t a debt solution, it often serves as a stepping stone to a debt management program (see below). It’s especially beneficial for people looking to understand the root of their debt and avoid future issues.
Credit counselling services are available across Canada and are typically low-cost or free for initial consultations.
Debt consolidation loan
A debt consolidation loan involves taking out a new loan to pay off multiple existing debts, leaving you with just one monthly payment.
The goal is to lower your interest costs and simplify repayment by replacing high-interest debts like credit cards with a lower-interest personal loan.
You can apply for debt consolidation through a bank, credit union, or private lender. To qualify, you’ll usually need a reasonable credit score and a reliable income. This is why it might not be suitable for people already experiencing severe financial distress.
It’s important to avoid accumulating new debt after consolidation. Otherwise, your situation may worsen, leading you to seek formal insolvency solutions down the road.
Debt management plan
A debt management plan (DMP) is a structured debt management program coordinated by a non-profit credit counselling agency. Under this plan, the agency works directly with your creditors to reduce or eliminate interest charges and create a single, affordable monthly payment.
While the debts are repaid in full, the interest savings can be significant. This makes DMPs a useful option if you owe money across multiple high-interest accounts like credit cards, for example.
DMPs generally last three to five years, and participation may be noted on your credit report for a period afterward. However, unlike bankruptcy, your credit rating won’t be badly damaged, and your assets are protected.
Debt settlement
Debt settlement is the process of negotiating with creditors to accept a lump sum payment that is less than the total amount you owe. This option is usually handled by a debt settlement company, which may charge fees upfront or after reaching a settlement.
While potentially effective, debt settlement carries risk. Some companies ask clients to stop making payments while negotiations are ongoing, which can damage credit and lead to legal action. Additionally, creditors are not legally obligated to accept a settlement offer.
Always research carefully before working with a debt settlement company. Make sure they are transparent about fees, processes, and risks, and check whether they’re accredited by a consumer protection agency.
Personal bankruptcy
Personal bankruptcy is considered a last resort, but for some individuals, it provides the best path to financial relief. It’s a legal process governed by the Bankruptcy and Insolvency Act and administered by a Licensed Insolvency Trustee.
When you file for bankruptcy, you receive immediate protection from creditor actions, and many types of debt are discharged. However, it can impact your life in several ways:
- Your credit report will show the bankruptcy for up to 7 years (or more for repeat filings).
- You may have to surrender certain non-exempt assets.
- You’ll be required to attend credit counselling sessions and possibly make surplus income payments.
- It may be hard to open a new account or get credit with certain banks or credit unions for a period of time.
Despite these challenges, bankruptcy can eliminate unmanageable debt and offer a fresh financial start for people who qualify.
How should I deal with unsecured debts like credit card debt?
Unsecured debts are debts not tied to any asset, meaning creditors cannot automatically seize property if you don’t pay. This includes credit card debt, payday loans, personal loans, and even tax debt owed to the Canada Revenue Agency (CRA).
These types of debts can quickly become overwhelming due to high interest rates and compounding late fees.
To deal with most unsecured debts effectively, the first step is understanding your total debt, monthly income, and ability to repay.
If you’re falling behind or only making minimum payments, options like credit counselling, debt management plans, consumer proposals, or even bankruptcy may help.
Each solution comes with trade-offs. A consumer proposal, for example, allows you to reduce and repay unsecured debts through manageable monthly payments.
A Licensed Insolvency Trustee can help determine the most practical option for your situation, ensuring you address your debt while protecting your financial future.
Are there debt reduction options for secured debts?
Secured debts, like mortgages or car loans, are tied to assets the lender can repossess if you fall behind on payments.
Unlike unsecured debts, these are harder to reduce through traditional debt relief programs. However, there may still be options if you’re struggling.
You can speak with your lender about refinancing, deferring payments, or negotiating better terms. It’s important to speak with a Licensed Insolvency Trustee to explore strategies based on your full financial picture.
Tips for dealing with unaffordable debts in Canada
Living with financial strain can take a serious toll on your well-being. If you’re behind on payments or struggling with everyday expenses, it’s important to take a proactive approach. Here are some tips to help you take control of your debt and regain financial stability.
1. Prioritize your debt payments
When you’re struggling to make ends meet, it’s crucial to prioritize what you owe and come up with a plan for the debt repayment process. Not all debts are equal; some carry higher interest rates, while others have more severe consequences if ignored (like secured loans on your home or car).
Start by identifying which debts are the most urgent; likely those with high penalties or tied to essential assets. Use a budget to track income and expenses and cut back where possible to save money. Even small adjustments to spending habits can free up extra cash to put toward your most important obligations.
2. Keep in contact with your creditors
If you’re having trouble keeping up with loan payments, one of the worst things you can do is ignore the problem. Communicating with your creditors early can go a long way when it comes to easing pressure. Many lenders are willing to work with borrowers facing short-term cash flow issues.
You may be able to request a temporary payment deferral, negotiate a lower interest rate, or extend your loan term to reduce your monthly burden. Being transparent about your financial difficulties shows that you’re serious about repaying what you owe and could help you avoid more severe consequences like collections or legal action.
3. Seek advice from a Licensed Insolvency Trustee
If your financial situation is too complex to manage on your own, speaking with a Licensed Insolvency Trustee (LIT) is a smart next step. LITs are the only professionals in Canada legally authorized to administer federally regulated debt relief solutions, including consumer proposals and bankruptcies.
During a free consultation, a trustee will assess your financial health, review your assets and liabilities, and explain all your available options. Their job isn’t to push you into a single solution but to guide you toward the best course of action based on your individual circumstances.
4. Consider a formal debt solution
If you’re dealing with multiple debts and have no clear path forward, informal strategies may not be enough. If you’ve exhausted other options, a formal debt solution like a consumer proposal or bankruptcy might be more appropriate.
A consumer proposal allows you to consolidate and reduce your unsecured debt into one affordable monthly payment, without losing your assets. It’s a legally binding agreement that stops collection calls and wage garnishments.
If your debts are unmanageable and your income is too low to support the repayment of a consumer proposal, filing for bankruptcy can offer a necessary reset, although it can have a severe impact on your credit.
Everyone’s financial situation is different, and there’s no one-size-fits-all solution. What’s important is taking the first step toward finding a path forward. Whether through budgeting, negotiation, or formal debt relief, help is available, and you don’t have to face it alone.
How can I get help to become debt free?
Even if your debt feels overwhelming, it’s important to know that help is available, and taking the first step toward a better financial future begins with professional support. A Licensed Insolvency Trustee from Farber can help you understand your options and build a plan that’s tailored to your unique situation.
During a free consultation, one of our experts will assess your finances, explain your rights, and recommend a clear path forward. Whether you’re dealing with credit card debt, payday loans, or tax debt, their role is to help you reduce what you owe and regain control.
If you’re ready to reduce the stress and start fresh, don’t wait. Get advice from a Farber Licensed Insolvency Trustee today and take the first step toward regaining control of your finances.