Canadians are carrying record levels of household debt, so it's no surprise that more people are looking into ways to get their finances under control. One way to do that is through a debt management plan (DMP).
I'd heard of debt management plans before, but I didn't really understand who they were for or whether they actually worked. Rather than turning to financial experts, I wanted to hear from Canadians who had been through the process.
After posting in Canadian personal finance communities on Reddit, I interviewed three people who had chosen a debt management plan over other debt relief options. Their stories revealed that while they all ended up in the same program, they arrived there for very different reasons.
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Finding Canadians who'd been through a DMP
I started by posting in three Canadian personal finance subreddits and messaging people who had previously written about debt management plans. Some decided not to go through with it in the end, and others were (understandably) not interested in sharing their experience. In total, I reached out to roughly 30 people. Three agreed to be interviewed for this story.
They came from different provinces and had very different financial situations, but all three ultimately chose a debt management plan because high-interest debt had become unmanageable.
Can you get a debt management plan anywhere in Canada?
Debt management plans are available in every Canadian province and territory through accredited credit counselling organizations and other providers. While the process is generally similar across Canada, fees and counselling services can vary depending on the organization you choose.
Sandra (Ontario): "I finally slept through the night."
Sandra enrolled in a debt management plan (DMP), a voluntary repayment program offered through credit counselling agencies. Rather than juggling multiple unsecured debts, borrowers make one monthly payment. Under this arrangement, creditors might agree to reduce or eliminate interest. Unlike a consumer proposal or bankruptcy, borrowers still repay the full amount they owe.
Sandra's debt started when she was in her twenties and receiving Ontario Disability Support Program (ODSP) benefits. She wasn't fully aware of how quickly high-interest borrowing could spiral, and eventually accumulated $12,000 across four different creditors: two payday loans and two subprime lenders.
The interest rates ranged from roughly 20% to 50%. Two creditors agreed to reduce the interest while she was on her debt management plan, while the other two froze interest completely.
Rather than considering bankruptcy or a consumer proposal, Sandra's psychologist referred her to Resolve Counselling Services Canada after she sought therapy for compulsive spending. Once she secured full-time employment, she felt she was finally in a position to repay her debts.
"I felt a legal but also moral duty to pay it all back."
For Sandra, a debt management plan made more sense than a consumer proposal because her debt load was manageable enough that she could realistically repay it with lower interest.
Did it affect her credit?
Yes.
Sandra says her credit rating dropped to an R7, but her score was already in the 500s because of missed payments and collection accounts. "I had nothing to lose since not making the payments and making them late had already impacted my credit."
Was the counselling actually useful?
Sandra says it was the most valuable part of the experience.
Besides consolidating her payments into one monthly amount, Resolve Counselling gave her budgeting advice and resources while treating her with compassion instead of judgment.
Collection calls can be one of the most stressful parts of dealing with debt. Sandra found that by enrolling in a debt management plan she was finally able to get the collection calls to stop.
"It changed my life and improved my mental health. I was able to sleep better, and the collection calls stopped."
Fees
Sandra paid nothing for her debt management plan.
Anthony (British Columbia): "The banks wouldn't approve me."
Anthony's financial situation changed after moving homes while trying to keep up with the rising cost of living. By the time he sought help, he had accumulated $24,000 in debt.
His interest rates ranged from 10% on one card to 25% on another, although most sat around 20%.
Anthony first tried to get a debt consolidation loan through his bank, but every lender required a co-signer because his Total Debt Service (TDS) ratio was too high.
"I didn't want to do a consumer proposal because that leaves a permanent mark on your credit report."
With consolidation unavailable, a debt management plan became the best alternative.
Anthony's experience also highlights one important thing about debt management plans: they're voluntary. Creditors aren't legally required to participate, so while some agree to eliminate interest altogether, others may reduce it or decline to participate.
Did it affect his credit?
Yes. Anthony says his credit score dropped from 730 to 590 almost immediately after entering the program.
Was the counselling useful?
Not particularly. Anthony says he already knew most of what they told him. That said, he believes someone with less financial knowledge would probably benefit much more from the counselling sessions.
Fees
Anthony pays $45 per month, which is calculated as a percentage of his repayment amount.
Lauren: "The interest savings sold me."
Lauren's debt came almost entirely from credit cards.
Eventually she found herself paying between 25% and 31% interest, and says she reached a point where she was paying more toward interest than toward the actual debt itself.
She first looked into a debt consolidation loan but couldn't qualify for the amount she needed. Even when financing was available, the interest rates weren't significantly better than what she was already paying.
The debt management plan was different because participating creditors reduced her interest charges while allowing her to repay everything she owed.
"The interest rate reductions sold me on the program."
Lauren also emphasized that a debt management plan isn't debt settlement. "I still have to pay back every dollar I owe."
She warns that while researching debt relief she came across companies encouraging people to stop paying creditors in order to qualify for debt settlement programs. "My credit would have been destroyed had I done that."
Did it affect her credit?
Lauren says her credit score actually improved after enrolling in the debt management plan.
Was the counselling useful?
Not really. She says she agreed not to take on additional debt but didn't receive much one-on-one financial counselling during the process.
Fees
Lauren pays a $50 monthly processing fee.
What these three Canadians agreed on and where they differed
Although everyone's situation was unique, a few themes came up repeatedly.
The biggest benefits
- Lower interest rates made repayment realistic
- Having one monthly payment reduced stress
- All three avoided bankruptcy or a consumer proposal
- Two interviewees said the emotional relief was just as valuable as the financial relief
The downsides
- Credit scores don't all respond the same way
- Counselling quality varied significantly
- You still repay the full amount you borrowed
- Not every creditor necessarily agrees to participate in the plan
How much does a debt management plan cost?
Unlike Licensed Insolvency Trustees, debt management plan fees aren't federally regulated.
Among the three Canadians I interviewed:
- Sandra paid $0
- Anthony pays $45/month
- Lauren pays $50/month
Some organizations charge administrative or processing fees, while non-profit credit counselling agencies may offer debt management plans at no cost.
Always ask about fees before signing an agreement.
Debt management plans don’t automatically tank your credit
One of the biggest misconceptions I came across while reporting this story was that a debt management plan automatically ruins your credit. After speaking with my sources, it’s clear that’s not necessarily the case.
Anthony's credit score fell from 730 to 590 after enrolling. Sandra's credit was already in the 500s because of missed payments and collections. Lauren, meanwhile, actually saw her score improve after entering the program.
If your credit has already taken a hit, enrolling may have a very different impact than it would for someone with a stronger credit history. Everyone's starting point is different, which is why it's worth checking your credit report before and after entering any debt relief program.
What if you want out?
Because debt management plans are voluntary, you can generally leave the program if your circumstances change. Keep in mind that creditors may resume charging their original interest rates or collection efforts if you do.
On the other hand, many credit counselling agencies also allow borrowers to make extra payments or pay off their plans early without penalty. It's worth confirming your provider's policies before signing an agreement.
Was it worth it?
For the three Canadians I interviewed, it was.
Although their situations differed, each chose a debt management plan because it allowed them to repay their debts in full without filing a consumer proposal or bankruptcy. One also cited avoiding the longer-term credit impact of a consumer proposal, while another had been unable to qualify for a consolidation loan.
If you have high-interest unsecured debt and can still afford to repay what you owe over time, a debt management plan may be worth exploring.
