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A Guide to Debt Management in Canada

If you’re struggling with unmanageable debt — especially with multiple creditors — you know it’s not just what you owe that’s stressful. It’s also trying to prioritize and keep track of your regular monthly payments, the unexpected and expected life events and your other bills and expenses.

The good news is programs and services such as debt management plans may be able to help make your payments more efficient and affordable. They may also accelerate your path to becoming debt free.

What is a Debt Management Plan?

A Debt Management Plan (“DMP”) is a process offered by credit counsellors which consolidates unsecured debts into one manageable monthly payment with a significant reduction or freezing of interest rates. However, you typically need to repay what is owed in full, over a period of up to five years. Your required monthly payment is made directly to the credit counselor, who then distributes the funds to your creditors until you’ve repaid the debt.

How Does a Debt Management Plan Work?

During your initial meeting with a credit counselor, they will review your debts and financial situation to determine:

  1. Whether you qualify for a debt management plan
  2. Whether your creditors are likely to accept a debt management plan
  3. What you can afford to pay each month toward your debt

If you decide to move forward, the credit counselor will then contact your creditors and negotiate a settlement that meets your needs and satisfies your creditors — this may sometimes take some back and forth to bring everyone onside. Once the plan is in place, you will begin making payments to the credit counselor and they will disburse all payments to your creditors monthly moving forward.

Once the outstanding balances are paid in full, you will be no longer owe any money to the creditors who participated in the debt management plan.

The benefits to entering a Debt Management Plan include:

  • Make one monthly payment — You no longer have to juggle and prioritize numerous debt payments, interest charges and due dates.
  • Pay less interest — You may be able to negotiate with your creditors to lower or eliminate interest charges, which will make your debt easier to afford over the long term.
  • Clear path to debt freedom — A debt management plan will provide structure and strategy to your debt repayment and a timeline to pay off your debt.
  • Support and advocacy — A credit counselor can provide you with helpful tips, insights and support throughout your debt management plan. They will also work on your behalf to ensure you get the best possible deal and terms from your creditors.

Debt Management Plan vs. Consumer Proposal

If a Debt Management Plan doesn’t quite fit your budget, you may have no choice but to seek the assistance of a Licensed Insolvency Trustee (“LIT”). An LIT is a licensed practitioner who can administer Consumer Proposals under the Bankruptcy and Insolvency Act. A Debt Management Plan and Consumer Proposal are similar since they both reduce interest, provide one monthly payment and offer a clear, supported path to debt freedom, but there are a few differences. These differences allow the Consumer Proposal to be utilized when a DMP isn’t the appropriate choice. The fundamental differences are:

A Consumer Proposal is a Court approved process — Once a majority (by dollar value) of your creditors agrees to the proposal, the proposal is then approved by the Court. The Court approval ratifies the contract between you and your creditors and there is no option to opt out, provided you continue to meet your responsibilities.

A Consumer Proposal has the ability to compromise on the debt outstanding – Unlike a DMP where the outstanding balances must be repaid in full, a consumer proposal allows for a compromise in the outstanding unsecured balances.

A Consumer Proposal stays collection actions and court judgements — Creditors and collectors may no longer contact you. Creditors may not initiate any new collection actions against you. There is a stay of proceedings in place which also effects wage garnishments.


If you owe unsecured debt and are unable to meet your monthly payment responsibilities, a Debt Management Plan may be a helpful path toward getting the financial fresh start you need. This process can help to alleviate the cost burden of high interest debt, and provide a clear timeframe to reach your goals.

However, if a Debt Management Plan doesn’t quite fit your financial circumstances then a Consumer Proposal is also an option which can consolidate your monthly debt payments to fit your budget.

A Licensed Insolvency Trustee offers a Free Confidential Consultation to review your finances, understand your goals and explain your options. Contact us to learn more about the potential solutions available to you.

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