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Canada Debt Management Guide

the debt management in Canada. The debt avalanche method focuses on the "highest interest debt first" (the "mathematically optimal" — the "most interest saved"). The debt snowball method focuses on the "smallest balance first" (the "psychological motivation" — the "quick wins"). The debt consolidation combines the multiple debts into the "single loan with the lower interest rate" (the "consolidation loan at 6% to 10%" — the "balance transfer card at 0% to 3%"). The credit counselling is the "non-profit debt advice" — the "Credit Counselling Canada" (the "CCC" — the "accredited credit counsellor"). The debt management plan (DMP) is the "formal repayment plan" offered by the credit counselling agency — the "interest rate reduction" — the "single monthly payment". The collection agency is regulated by the "provincial laws" — the "Ontario limit of 3 collection calls per week" — the "BC regulation of the collect calls". The statute of limitations on the debt collection is 2 years in Ontario and BC, 3 years in Alberta, and 3 years in Quebec.

Debt Repayment Strategies

• Debt avalanche: The "highest interest rate first" — the "list the debts from the highest APR to the lowest APR" — the "pay the minimum on all debts except the highest APR debt" — the "put the extra money toward the highest APR debt". The avalanche saves the most interest over time.
• Debt snowball: The "smallest balance first" — the "list the debts from the smallest to the largest" — the "pay the minimum on all debts except the smallest" — the "put the extra money toward the smallest debt". The snowball provides the "motivational wins" (the "quickly eliminate the small debts").
• Debt stacking: The "combination approach" — the "avalanche for the high-interest debt" and the "snowball for the low-interest debt". The stacking approach balances the interest savings with the motivation.

Debt Consolidation

• Consolidation loan: The "unsecured personal loan" (the "6% to 12% interest rate" — the "fixed payment" — the "1 to 5 year term"). The loan pays off the credit cards and the other debts. The borrower makes the single monthly payment.
• Balance transfer credit card: The "0% introduction APR" (the "6 to 12 months interest-free" — the "balance transfer fee at 1% to 3%"). The balance transfer card is for the "short-term debt consolidation".
• HELOC debt consolidation: The "home equity line of credit" (the "prime + 0.5% to 2%" — the "lower interest rate" — the "long-term repayment"). The HELOC consolidation is the "most cost-effective" but the "home is the collateral".

Collection Agencies

• Provincial regulation: The collection agencies are regulated by the "provincial collection laws". Ontario: the "Collection and Debt Settlement Services Act" — the "maximum 3 calls per week" — the "no calls on the Sundays or the statutory holidays". BC: the "Business Practices and Consumer Protection Act" — the "no communication at the inconvenient time". Alberta: the "Collection and Debt Repayment Practices Regulation". Quebec: the "Quebec Consumer Protection Act".
• Debt collector rights: The collector can contact the debtor by the "phone, the mail, and the email". The collector can contact the "employer" only to verify the employment (the "no discussion of the debt with the employer"). The collector can contact the "spouse" and the "references" but only to obtain the debtor's contact information.
• Debtor rights: The debtor can request the "written verification of the debt" (the "validation letter"). The debtor can dispute the debt in writing (the "dispute letter"). The debtor can request the "cease and desist" (the "stop communication" — the "no further contact except the legal action"). The debtor can negotiate the "payment plan" or the "lump-sum settlement".

Formal Debt Solutions

• Credit counselling DMP: The "non-profit credit counselling agency" negotiates with the creditors for the "interest rate reduction" and the "single monthly payment". The DMP takes 3 to 5 years. The DMP does NOT affect the credit score as severely as the "consumer proposal" or the "bankruptcy".
• Consumer proposal: The "formal debt settlement under the Bankruptcy and Insolvency Act" — the "proposal to the creditors" — the "pay a portion of the debt". The consumer proposal is administered by the "Licensed Insolvency Trustee".
• Bankruptcy: The "last resort" — the "discharge of the debts" — the "asset liquidation" — the "credit impact for 6 to 7 years".

For the consumer proposal and the bankruptcy details, see our Consumer Proposal Guide → and our Bankruptcy Guide →. For the HELOC debt consolidation, see our Loans & Lines of Credit Guide →.