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Find the Best Strategy for You

If you’re in debt, it can be confusing trying to figure out how to get out of debt. Thankfully, there are many different personal debt management strategies to choose from. But not every strategy is suitable for every debt situation.

To help understand which debt strategy might work best for you, we’ll take a look at a few different strategies for managing debt and what makes each one useful for different situations.

What Is Effective Debt Management?

You might be wondering, “What is a debt strategy?” 

A debt strategy typically refers to a plan or method for paying down or eliminating debt. This can include managing cash flow, debt consolidation, or insolvency. 

An effective debt management strategy is one that takes into account your unique situation, obligations, and needs. It’s a carefully-considered and comprehensive solution for resolving your debt in a way that places the least possible stress on you while working towards your financial goals within a reasonable timeframe.

What Are Three Ways to Manage Debt?

For some, the best personal debt management strategy might be to simply readjust their cash flow. 

That could mean creating a budget, eliminating unnecessary spending, applying for government benefits or tax credits they may qualify for, and/or decreasing certain monthly costs. Then taking any extra funds they created in their budget to pay off their debts one by one until they’re all taken care of.

But for some people, adjusting their cash flow isn’t enough (or in some cases, isn’t even an option) to eliminate their debts. They may need a more hands-on approach to debt management that requires a bit more support, such as debt consolidation or insolvency.

To help keep the discussion about managing debt simple, we’ll focus on three core debt solutions under these two different debt strategies (debt consolidation and insolvency) along with their pros and cons:

1. Debt Consolidation Loans

If you have a fairly good credit history, a debt consolidation loan might be an option. 

A debt consolidation loan is a loan from a bank, credit union, or another lender that is used to pay off multiple debts at once. This is one of the best strategies for managing personal debt for people who have good credit because it eliminates multiple unsecured debts in one fell swoop. Once these are paid off with the loan, clients only need to focus on paying back the debt consolidation loan.

With good credit, you can often get a favourable interest rate on the loan. Ideally, this interest rate should be lower than the average interest rate on all of the outstanding debts.

On the other hand, looking for debt consolidation loans with bad credit can be frustrating. If your credit score is low, then you may not qualify for the loan—or only get offers from less reputable lenders who offer loans with extremely high-interest rates.

Here’s a quick overview of the pros and cons of debt consolidation loans:


  • Consolidation Simplifies Your Debt Repayment. Since you can use the loan to pay off several debts at once, you can go from having to track several different payment due dates and minimum amounts to only having to track one payment. This makes it much easier to manage your debt and avoid accidentally running up late fees or other penalties.
  • You Can Save Money on Interest. If you have good credit, you might be able to get favourable loan terms that have lower interest rates than your individual debts. This, in turn, can help you save a lot of money on interest in the long run, which can also help you get out of debt faster.


  • You Have to Qualify for the Loan. Like with any service from a lender, the lender will want to verify that you’re a reliable client before giving you the loan. This involves running a credit check to see what your credit score is. If you have a low score, you might not be able to get the loan. Alternatively, you could apply for a debt consolidation loan with a cosigner or roll your outstanding debt into your mortgage if your credit score would disqualify you for an unsecured bank loan.
  • You May Actually Increase Your Debt. When you get a debt consolidation loan, it can be tempting to start using whatever credit cards paid off with the loan and rack up more debt. It’s important to resist this temptation. Otherwise, you could end up increasing your debt rather than repaying it.
  • Finding the Right Type of Loan Can Be Confusing. You’ll need to consider whether the loan is secured or unsecured, what your interest rate will be, the minimum monthly payment, payment due dates, terms and conditions for handling late payments, and more.  

2. Debt Consolidation Programs

A debt consolidation program, or DCP, is an alternative to applying for a loan that is often useful for those who have lower credit scores or other financial issues that make working with a bank or other lender difficult. 

Under the DCP, a credit counsellor will negotiate with creditors on your behalf to develop a debt repayment plan that works for you and that they will agree to.

DCPs take your unsecured debts and roll them into a single monthly payment you can afford to simplify the debt repayment process. Also, your credit counsellor will work to stop or significantly reduce the interest rates on your unsecured debts, so every payment you make goes towards paying off the principal rather than interest.

Many creditors will accept these programs because they find it preferable to the next alternative (insolvency), while you get to enjoy the benefit of getting creditors and their collection departments off your back.

Some of the pros and cons of a DCP include:


  • Simplifies Your Debt Repayment. Just like with a debt consolidation loan, a debt consolidation program simplifies debt repayment by rolling multiple debts into a single monthly payment. Even better, the reduction of interest helps clients save money and become debt-free faster. Most DCPs are cleared within 3-5 years.
  • You Don’t Need a Good Credit Score. A DCP is not a loan—it’s a negotiated agreement between you and your creditors (mediated by a certified credit counsellor). Because it isn’t a loan, you don’t need a high credit score to qualify. For this reason, a DCP is one of the best options for those who are in debt and have poor credit.
  • No More Collection Calls. Once you’re on a DCP, the calls from your creditors and their collection agencies should stop almost immediately.
  • You Get Support as You Get Out of Debt. In addition to helping you get out of debt, a certified credit counsellor will work with you every step of the way, providing training, resources, guidance, and support throughout this kind of debt management program.


  • Only Unsecured Debts are Included. Only unsecured debts can be included in a DCP. This means you can’t include debts like auto loans where there’s collateral on the line.
  • You Have to Surrender Your Credit Cards. When you’re on a debt consolidation program, you cannot keep your credit cards and you cannot apply for additional credit. This typically isn’t an issue as most clients have maxed out their credit anyway. Secured credit cards or prepaid credit cards are still available options while on a DCP.
  • Your Credit Will Be Impacted. While on a DCP, a client’s debts will have an R7 or R9 rating, then R7 for two years after completing the DCP. However, many clients see a jump in their credit score as soon as they’ve completed their DCP.  

3. Insolvency

Instead of repaying 100% of your debts, in some cases, considering insolvency – that is, filing a consumer proposal or declaring bankruptcy – may be a better option. In that case, clients work with a Licensed Insolvency Trustee, or LIT, who will help file the appropriate paperwork and explain what their duties and obligations are.

Insolvency isn’t typically the first debt management solution most people consider. However, it can be the best option if you are truly drowning in debt and cannot find another way out. Some pros and cons of filing a consumer proposal or declaring bankruptcy include:


  • You May Not Have to Pay Back 100% of Your Debts. Under a consumer proposal, you can pay a percentage of your debts, extend the amount of time you have to pay off your debts, or do a combination of both. If you declare bankruptcy, you surrender your non-exempt assets to the LIT to sell/auction. Then the funds are used to pay off whatever amount can be paid to your creditors. 
  • You Can Get Out of Debt Faster. Because you may not have to pay back 100% of your total debts owed, you can become debt-free quicker. 


  • You Will Need to Pay Fees. There are fees involved when filing a consumer proposal or declaring bankruptcy. The LIT you work with should clearly outline what these fees are.
  • Your Credit Will Be Impacted. Throughout the duration of a consumer proposal, your credit rating is an R9. Once paid, your rating goes up to an R7 for the following 3 years. If you declare bankruptcy, your credit rating is an R9 during the period of bankruptcy, and it remains an R9 for six to seven years following discharge, depending on the province.
  • There Will Be a Public Record. Consumer proposals and bankruptcies are a matter of public record that anyone can access. That means if you file a consumer proposal or declare bankruptcy, others may find out. 
  • Bankruptcy Can Result in the Loss of Your Assets. Although there are limits on what can be taken, a bankruptcy can result in the loss of some of your assets. Why? Because your creditors need to be reimbursed at least in part for the money they’re owed. So, during a bankruptcy filing, some of your assets may be seized and auctioned off to help pay your creditors.
  • It Can Be More Difficult to Work with Banks and Other Lenders. If a lender or other financial institution sees a bankruptcy or consumer proposal in your credit history, they may not want to offer you certain services or products, or they may only offer them at an inflated interest rate. However, with time and consistent effort, you can rebuild your credit after insolvency.
  • Employers May Refuse to Hire You if You Have a History of Bankruptcy. In certain industries, some employers may conduct background checks on job applicants. Depending on the role the applicant is applying for, an employer might see a bankruptcy as a potential risk and decline to hire an otherwise perfectly-qualified applicant. 

Which Debt Management Strategy Is the Best?

There is no “one-size-fits-all” solution to getting out of debt. For some, the best personal debt management strategy might be to simply create a budget, figure out how much money they can put towards their debts every month, and start paying them down one-by-one until they’re all taken care of. 

For others, a debt consolidation loan could be the perfect solution to stopping collection calls and having to juggle a dozen or more monthly bills. Some may need to consider filing a consumer proposal or for bankruptcy to effectively manage their debt once and for all.

Before committing to any particular strategy or debt solution, it can be extremely helpful to speak to a non-profit credit counsellor. They can provide free, unbiased advice and debt counselling help. This can include discussing the specific types of debt you’re dealing with, the particulars of your situation, and what your options are so you can find the best debt management strategy to fit your needs.

Reach out today to receive free debt help and get started on the path to becoming debt-free!

Which debt relief options is right for you? Answer four quick questions to find out. Take the Debt Assessment Quiz.



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