Breaking the Debt Cycle: Smart Consolidation and Relief Options for Canadians

May 5, 2025

Sara Maginn Pacella

Canadian households are in debt. Statistics from the 16th Annual National Payroll Institute Survey of Working Canadians reveal that financial stress continues to intensify for Canadians, with a quarter of survey respondents living paycheque-to-paycheque and nearly half of respondents reporting feeling overwhelmed by their debt. Popular solutions to this endemic problem include better financial education, information about debt relief and debt consolidation loans, with options available to gain financial freedom from personal debt.

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What are the long-term impacts of being in debt?

Ongoing debt stress can impact people in many ways, touching every aspect of their lives. Equifax highlights the strong link between debt and mental health, noting, “People with debt are more likely to face common mental health issues, such as prolonged stress, depression and anxiety.” They also note that those struggling with mental health issues may find it even harder to manage their finances, further increasing their debt load.

Antonette Morrison is an underwriting manager at Get a Better Mortgage Inc. She has nearly a decade of experience as a mortgage broker and is licensed in Ontario, Alberta and Manitoba. Morrison tells HCM Dialogue that, in addition to mental health afflictions, there can be other long-term repercussions for those carrying high debt loads. Morrison says, “Individuals who are only able to make minimum payments on their debts month after month will see a long-term impact on their credit score and, in turn, an impact on their overall creditworthiness.”

What debt relief programs are available to Canadians?

The Government of Canada offers many resources for people looking to manage their debt. These resources allow people to learn about their options and how to get started managing their personal debt load. These resources include information on:

Planning to manage your debt
Dealing with debt collectors
Securing help from credit counsellors
Using debt settlement companies
Filing for bankruptcy
Utilizing financial goal calculators

” Ongoing debt stress can impact people in many ways, touching every aspect of their lives. ”

What is debt consolidation?

Morrison explains that debt consolidation is when someone combines cumulative debts such as credit cards, personal lines of credit, car loans and student loans into a new loan with a lower interest rate and one small monthly payment.

Morrison demonstrates a consolidation loan’s impact on someone’s overall financial health. She says, “Consolidating debts with a high interest rate, for example 19.99% on a credit card, to a 4% interest loan, will greatly help free up the individual cash flow. This will help improve someone’s credit scores, eliminate financial stress and increase their savings.”

What are some benefits of mortgage secured debt consolidation loans?

Morrison says that the benefits of consolidating higher-interest loans include:

Multiple loans are reduced to one monthly, fixed payment at a lower interest rate
Credit scores can increase for those who don’t go over their credit limit and pay their consolidation loan on time

What are some risks associated with debt consolidation loans?

Morrison says that some pitfalls of consolidation loans can include higher fees associated with the loan and a shorter repayment period compared to other types of loans (like mortgages). She also notes that those who borrow more than they need may find themselves unable once again to meet their monthly obligations on time. In turn, this will significantly affect their credit score and ability to borrow in the future.

What are the best debt consolidation loans?

The Credit Counselling Society emphasizes, “The best consolidation loans should simplify your payments and charge you less interest.” They also suggest people look for trusted lenders with terms that suit their needs. They note that the big five Canadian banks are seen by many as the “safest choices,” but smaller, reputable companies are also worth exploring, and that as long as you verify that an online loan provider is credible, there is no difference between an online and an in-person secured debt consolidation loan.

The Credit Counselling Society warns that “many specialized ‘debt relief’ companies provide debt settlement, consumer proposal or bankruptcy services rather than consolidation loans. These are all very different options from a loan and can have far worse consequences if used incorrectly. If what you want is a loan to consolidate your debt, then make sure that’s exactly what you’re getting.”

What else should be considered when making a debt consolidation plan?

Morrison emphasizes the importance of looking at your long-term financial and personal goals as a part of your debt repayment strategy. She says, “Those looking to become a homeowner in the future should contact a mortgage agent or broker before considering consumer proposals to consolidate debts to find the solutions that will best meet their needs.”

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