Many Canadians find themselves in debt, often due to payday loans or credit card overuse, which can accumulate quickly.

When debt robs you of your happiness and peace of mind, people often don’t know what to do next or how to fix their financial situation.

Many people turn to the government to see whether any free Canadian government grants to pay off debt are available and whether there are alternative options.

In this article, we’ll explore whether or not government grants for debt relief exist and examine the various different debt relief options and programs offered by the Canadian government.

Do free Canadian government grants to pay off debt exist?

There are no Canadian government grants to pay off debt, but there are government-regulated debt relief programs, such as a consumer proposal or bankruptcy. These programs offer creditor protection, with costs and legislation set by the federal government to guarantee that they are safe and trusted.

Ads promoting Canadian government debt relief services are not directly offered by the government. Instead, these government debt relief programs work within government regulations to offer debt relief.

The government’s role is to provide safe government debt relief programs through a Licensed Insolvency Trustee rather than direct funding through free Canadian government grants.

Both bankruptcy and a consumer proposal are Canadian government debt programs.

A consumer proposal lets you pay back some of your debt, with the rest forgiven. It’s one of the best ways to combine and reduce your debts.

If you have overwhelming debts, bankruptcy lets you give up some of your assets in exchange for debt forgiveness.

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  • Keep your assets
  • Freeze interest
  • Stop collections
  • Reduce your debt
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Beware of debt relief scams

Be on the lookout for scams and businesses that claim to be giving away government money.

For example, some firms say that they are Canadian government-approved, baiting you into paying upfront for services or taking out a loan with high-interest rates.

Notably, only a Licensed Insolvency Trustee can administer a consumer proposal or personal bankruptcy filing and offer legally-binding consumer protection against creditors.

Government benefits for individuals and businesses

The Benefits Finder can help you find any money that you may be eligible to receive. For business owners, the government does offer multiple loans and grants for small enterprises and businesses through their Business Benefits Finder.

Debt relief programs in Canada

Rather than offering grants, the government directs Canadians to legal debt relief options available under the Bankruptcy and Insolvency Act.

Bankruptcy and a consumer proposal are federal government regulated debt relief programs in Canada.

However, there are other debt relief options that might be better suited to your situation. Here are a few to consider.

Debt consolidation loan

Credit card debt is difficult to repay because it accumulates quickly due to high interest rates. This is especially true if the cardholder lacks a solid debt management strategy and debts originate from several cards.

Thanks to outrageously high interest rates on credit cards and payday loans, making minimum payments results in a never-ending cycle of debt. This situation can also occur with payday loans.

Consolidating your debt lets you combine your existing obligations into a single debt consolidation loan. Doing so allows you to repay less each month at a lower interest rate, which will help you get out of debt faster.

If you have poor credit, you may still be able to reduce your payments through a consolidation loan, but you’ll pay a higher interest rate.

Pros and cons of debt consolidation

Pros of debt consolidation

  • Suitable for a variety of debts, like credit cards and personal loans.
  • Access a low interest loan.

Cons of debt consolidation

  • You need a stable income and good credit to access debt consolidation loans.
  • May initially lower your credit.

Debt settlement

You may seek debt settlement if you cannot pay off the balance owed. When you choose debt settlement, you negotiate with your creditors to make smaller payments than you would otherwise owe them.

You can contact your creditors yourself or ask a debt settlement company to negotiate a better settlement arrangement on your behalf.

Debt settlement companies typically charge high fees and may refer you to a Licensed Insolvency Trustee, which is free.

These companies cannot guarantee that creditors will accept a settlement offer. They have no authority to prevent creditors from contacting you.

Before choosing a debt settlement program, you might want to consider other options. Avoid taking debt settlement services from companies; if you’re going to settle debts this way, do it yourself.

Pros and cons of debt settlement

Pros of debt settlement

  • Negotiable terms.

Cons of debt settlement

  • Companies may charge a large fee.
  • Creditors can still contact you.
  • Affects your credit.

Credit counselling

One of the leading causes of debt is a lack of financial literacy. Having the right financial knowledge and proper finance management can help you stay debt free.

Credit counsellors offer advice and solutions tailored to your financial situation, helping you to pay off what you owe quickly.

Their role is to help you manage your income and spending and to help you pay off your debts faster.

Spending patterns are an area where people are most likely to make mistakes. Reducing these mistakes will help you save money and pay off debt more quickly.

A credit counsellor may recommend a debt management plan involving a repayment plan over three years. Under a debt management plan, you make monthly payments to the credit counselling agency.

Credit counselling is not for everyone, but it can help you manage your finances in the long term. The sooner you can start managing your finances, the better.

Some agencies are for-profit, so always choose a non-profit credit counselling agency.

Pros and cons of credit counselling

Pros of credit counselling

  • Receive spending and budgeting advice.
  • Multiple debt options are available.
  • Reduce interest on your debt.

Cons of credit counselling

  • There is often an initial setup fee and a monthly fee.
  • A debt management plan doesn’t let you reduce the amount you owe.
  • You need disposable income.
  • Affects your credit.

Consumer proposal

While there aren’t free Canadian government grants, a consumer proposal is the next best thing because you can benefit from debt reduction.

In Canada, a consumer proposal is the only legally binding way to settle debts, and you can reduce the total amount through debt forgiveness.

It is a formal arrangement made with creditors, overseen by a LIT who will administer your proposal and help you determine a reasonable monthly payment schedule.

The best thing about consumer proposals is that they can reduce your debt, lower monthly payments, and you can keep your assets. This solution is better for creditors than if you filed for bankruptcy because they get paid more.

They’re effective for lots of debt, including tax debts, personal loans, student loans, and credit card bills.

This arrangement allows you to freeze interest, stop collection calls and end wage garnishments.

Pros and cons of a consumer proposal

Pros of consumer proposals

  • Reduce your debt.
  • Lower your monthly payments.
  • Works for many types of debts.
  • Keep your assets.
  • Freeze interest and charges.
  • Legally stop collection calls.

Cons of consumer proposals

  • You need disposable income.
  • Mortgages and car loans cannot be included.
  • Not all student loans can be included.
  • Affects your credit score.

Since it’s a government-approved debt relief program, it’s an excellent way to stop creditors legally from calling. It’s also possibly the closest to a free Canadian government grant you can get because it can reduce your debt.


Filing bankruptcy isn’t the best solution for debt relief since it’s only beneficial after all other solutions fail. To qualify, a Licensed Insolvency Trustee (also known as a bankruptcy trustee) must examine your assets and liabilities to determine whether you can afford to pay.

When you file for bankruptcy, your assets are sold, and the proceeds are distributed to your creditors. In return, you can clear your debts and start over.

Pros and cons of bankruptcy

Pros of personal bankruptcy

  • Eliminate your debts.
  • Stop creditor action.
  • Freeze interest and charges.
  • Some assets are protected.

Cons of personal bankruptcy

  • It can be expensive if you have a substantial income.
  • Your assets may be at risk.
  • Affects your credit.

There are no free government grants, but debt programs are available

There are no free Canadian government grants to pay off debt, but a consumer proposal and bankruptcy are government debt relief programs that can help you resolve debts. Both offer creditor protection under Canadian law.

Although there is no direct government help, using a debt relief program or getting some free debt advice could set you on the road to debt free living.

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