Debt Consolidation Glossary: 47 Key Terms Explained for Canadians

Debt consolidation terminology confuses most Canadians drowning in credit card bills and collection calls. You’re trying to compare options but every website throws different acronyms at you—APR, DTI, R7, LIT—without explaining what they mean for your situation. This glossary breaks down 47 essential debt consolidation terms with Canadian-specific numbers, thresholds, and timelines so you understand exactly what lenders, trustees, and credit counsellors are talking about.

Core Debt Consolidation Terms

Debt Consolidation combines two or more debts into a single payment, typically at a lower interest rate. You borrow from one lender to pay off multiple creditors, leaving you with one monthly payment instead of juggling five credit cards and three loans. Most Canadians consolidate $5,000-$50,000 in unsecured debts.

Unsecured Debt means credit without collateral backing it. Credit cards, personal loans, payday loans, medical bills, and utility arrears fall into this category. If you default, the lender cannot seize assets directly—they must sue you or send the account to collections. Debt consolidation programs focus exclusively on unsecured debt.

Secured Debt requires collateral the lender can repossess if you stop paying. Your mortgage, car loan, and secured credit cards fit here. The catch is you cannot include secured debts in Debt Management Programs or consumer proposals because the collateral protects the lender. You must continue paying these separately or risk foreclosure and repossession.

Principal is the original amount you borrowed, excluding interest and fees. If you charged $8,000 on a credit card, that’s your principal. Every payment splits between principal and interest—the more that goes to principal, the faster you eliminate the debt.

Balance Transfer moves debt from high-interest credit cards to a promotional 0-3.99% APR card for 6-24 months. You pay a 1-5% transfer fee upfront. Jason from Mississauga transferred $14,300 from three cards charging 19.9% to a 0% card for 18 months, paying a $429 fee but saving $3,200 in interest by paying it off before the promo expired.

Interest Rates and Cost Terms

APR (Annual Percentage Rate) shows the true yearly cost of borrowing, including interest and most fees. A loan advertised at 9% interest might carry 9.8% APR after adding origination fees. Always compare APRs, not just interest rates. Canadian credit cards average 19% APR in 2026, while bank consolidation loans run 7-12% for borrowers with good credit.

Interest is the cost of borrowing money, calculated as a percentage of your balance. Credit card companies charge interest daily on unpaid balances. At 19% APR on a $10,000 balance making minimum payments, you’ll pay $6,200 in interest over 8+ years. Drop that rate to 10% on a 60-month loan and you pay $2,700—saving $3,500.

Prime Rate is the baseline lending rate Canadian banks charge their most creditworthy customers, currently fluctuating with Bank of Canada policy decisions. Most consolidation loans price as “Prime + X%“—if prime is 5.95% and your loan is Prime + 3%, you pay 8.95% APR.

Origination Fee is an upfront charge for processing your loan, typically 1-5% of the borrowed amount. A $20,000 consolidation loan with a 2% origination fee costs you $400 before you see a dollar. Some lenders roll this into the loan amount, others deduct it from your disbursement.

Minimum Payment is the smallest amount your creditor accepts each month without marking you late. Most Canadian credit cards calculate this as 2.5-3% of your balance. Quebec mandates 5% minimums as of August 2025, forcing faster repayment but higher monthly obligations. A $2,000 balance requires $60/month elsewhere but $100/month in Quebec.

The math is brutal. Minimum payments keep you trapped in debt for nearly a decade while consolidation loans cut that time by 60% and slash interest costs by 70-90%.

Credit Rating and Reporting Terms

Credit Score is a three-digit number (300-900) measuring your creditworthiness based on payment history, credit utilization, account age, and inquiries. Canadian lenders typically require 650-680 minimum for consolidation loans, with 720+ unlocking the best rates. Your score drops 5-10 points temporarily when lenders pull your credit for loan applications.

Credit Report is your detailed financial history maintained by Equifax and TransUnion in Canada. It lists every credit account, payment record, public records (bankruptcies, judgments), and inquiries. Negative marks like missed payments stay for 6 years, while consumer proposals and bankruptcies remain 3-7 years depending on the province and credit bureau.

Hard Inquiry happens when lenders check your credit for loan or credit card applications. Each inquiry shaves 5-10 points off your score temporarily, recovering within 6-12 months. Multiple inquiries in a short window (14-45 days for rate shopping) count as one inquiry, so applying to three lenders for consolidation quotes won’t triple the damage.

Credit Utilization Ratio measures how much available credit you’re using. Divide your total balances by total credit limits and multiply by 100. If you have $8,000 in balances across $20,000 in limits, your utilization is 40%. Keep this under 30% for healthy credit scores—under 10% is ideal. Paying down balances through consolidation can dramatically improve this ratio.

R7 Rating appears on your credit report when you’re “making regular payments through a special arrangement to settle debts.” This notation shows up for Debt Management Plans (remains 2 years after you complete the program), Consumer Proposals (stays 3 years after final payment OR 6 years from filing date, whichever comes first), and debt settlements. It’s less damaging than R9 (bankruptcy) but signals to lenders that you struggled with the original terms.

R9 Rating marks bankruptcy on your credit report. This stays for 6 years after discharge in most provinces, though Ontario, Quebec, Newfoundland, and PEI show 7 years on TransUnion. No new credit card or loan approvals happen with R9 active—you’re rebuilding from scratch with secured cards and small credit-builder loans.

Stay of Proceedings is immediate legal protection that stops all creditor collection actions the moment you file a consumer proposal or bankruptcy. Wage garnishments halt. Collection calls cease. Lawsuits pause. Your Licensed Insolvency Trustee contacts all creditors within days, and they must deal exclusively with the trustee from that point forward.

Debt Relief Program Types

Debt Management Plan (DMP) is a structured repayment program through non-profit credit counselling agencies where you repay 100% of your debt over a maximum 5 years. The agency negotiates with creditors to waive interest charges and consolidate payments into one monthly amount. You pay the agency, they distribute funds to creditors. Your credit report shows R7 notation for 2 years after you complete all payments. Programs are free or charge minimal setup fees ($50-$75) and small monthly administration fees ($25-$50).

Consumer Proposal is a government-regulated legal process under the Bankruptcy and Insolvency Act where you offer creditors 20-80% of what you owe, paid over a maximum 5 years. Only a Licensed Insolvency Trustee can file this. Creditors holding the majority of your debt must vote to accept your offer. Once approved, remaining debt is forgiven and collection actions stop permanently. Your credit report carries R7 notation for 3 years after your final payment or 6 years from filing date, whichever comes first. This works for unsecured debts up to $250,000 (excluding your mortgage).

Tanya from Kitchener owed $47,000 across seven credit cards with a 625 credit score and $52,000 annual income. Her DTI sat at 51%, disqualifying her from bank loans. A Licensed Insolvency Trustee filed a consumer proposal offering $16,000 over 48 months ($333/month). Creditors accepted, saving her $31,000 and cutting her DTI to 7.7%.

Debt Settlement involves negotiating directly with creditors (or hiring a company to negotiate) to accept less than the full balance owed. You typically stop making payments while building a settlement fund, then offer a lump sum of 20-80% of the debt. This wrecks your credit temporarily and settlement companies charge 15-25% of enrolled debt. Unlike consumer proposals, there’s no legal protection—creditors can still sue you during negotiations.

Bankruptcy is the legal process that eliminates most unsecured debts when you cannot repay them. A Licensed Insolvency Trustee files your bankruptcy, liquidates non-exempt assets to pay creditors, and you’re discharged in 9-21 months for first-time bankruptcies. Your credit report shows R9 for 6-7 years post-discharge. First-time bankruptcy costs $1,800-$2,500 in trustee fees plus any surplus income payments if you earn above threshold amounts set by the Office of Superintendent of Bankruptcy.

Home Equity Loan/HELOC lets you borrow against your home’s value at 5-8% interest rates. You can access up to 80% of your home’s appraised value minus your mortgage balance. The danger is you convert unsecured debt into secured debt—if you cannot repay, you risk foreclosure. Marcus from Red Deer consolidated $38,000 in credit cards with a HELOC at 6.5%, saving $425/month in interest, but his home now backed that debt.

Balance Transfer Credit Card offers promotional 0-3.99% APR for 6-24 months on transferred balances. You pay 1-5% transfer fee upfront. The strategy only works if you pay off the full balance before the promotional period ends—otherwise rates jump to 19-21%. Cards require good credit (700+) for approval.

Qualification and Eligibility Metrics

Debt-to-Income Ratio (DTI) measures your monthly debt obligations against your gross monthly income. Add up all recurring debt payments (credit cards, loans, rent or mortgage), divide by gross monthly income, multiply by 100. If you earn $4,000/month and pay $1,500 toward debts, your DTI is 37.5%.

Lenders approve borrowers with DTI under 44%, preferring 36% or lower. Above 45% signals severe financial distress, disqualifying you from traditional consolidation loans. High DTI pushes you toward consumer proposals or Debt Management Plans where DTI isn’t a barrier—only your ability to make the proposed payment matters.

Calculate your DTI: $4,200 monthly income with $800 car payment, $450 credit card minimums, $350 line of credit payment, and $1,200 rent = $2,800 in debts ÷ $4,200 income = 66.7% DTI. No bank approves this. Your options narrow to consumer proposal or bankruptcy.

Collateral is an asset securing a loan that lenders can seize if you default. Your home secures your mortgage, your car backs your auto loan, deposits secure secured credit cards. Consolidation loans are typically unsecured, requiring no collateral but charging higher interest rates (10-18%) than secured options like HELOCs (5-8%).

Cosigner is someone who agrees to repay your loan if you default. Their credit and income strengthen your application, helping you qualify for larger amounts or better rates. The risk is you damage their credit and relationship if you miss payments—the lender pursues them for full repayment. Most debt relief programs don’t allow cosigners.

Proof of Income verifies you can afford loan payments. Lenders require 2-3 recent pay stubs for employees, 2 years of tax returns plus 3-6 months of bank statements for self-employed borrowers, and government benefit statements for disability or pension income. No income verification = no approval, even with excellent credit.

Minimum Credit Score varies by lender and product. Banks require 650-680 for consolidation loans at competitive rates. Credit unions may approve 620+ with higher rates. Alternative lenders work with 580-600 scores but charge 18-30% APR. Below 580, you’re looking at consumer proposals or credit counselling, not traditional loans.

Legal and Regulatory Terms

Licensed Insolvency Trustee (LIT) is the only professional legally authorized to file consumer proposals and bankruptcies in Canada. LITs are federally licensed and regulated by the Office of Superintendent of Bankruptcy. They assess your financial situation in a free 45-60 minute consultation, explain all debt relief options, and file the appropriate paperwork if you choose a consumer proposal or bankruptcy. Credit counsellors and debt consultants cannot file these government programs—only LITs have this authority.

You’ll find your local LIT through the Office of Superintendent of Bankruptcy’s online directory. The consultation is always free and confidential. The trustee examines your income, assets, debts, and expenses to determine if you can afford a consumer proposal or if bankruptcy makes more sense. They work for creditors technically, but they must give you unbiased advice on all options.

Bankruptcy and Insolvency Act (BIA) is the federal law governing all consumer proposals and bankruptcies in Canada. It sets the rules for filing, creditor voting requirements, discharge timelines, exempt assets, and trustee responsibilities. The Office of Superintendent of Bankruptcy enforces this act. Understanding BIA protections is critical—it defines what debts can be eliminated (credit cards, lines of credit, tax debt) and what cannot (child support, alimony, court-ordered fines).

Office of Superintendent of Bankruptcy (OSB) is the federal agency regulating Licensed Insolvency Trustees and overseeing all consumer proposals and bankruptcies filed in Canada. They maintain the public LIT directory, investigate complaints against trustees, and ensure the Bankruptcy and Insolvency Act is followed. Check their website to verify your trustee’s license is active before signing anything.

Credit Counselling Canada Accreditation certifies non-profit credit counselling agencies meet national standards for financial counselling, debt management programs, and ethical practices. Accredited agencies employ certified counsellors who analyze your budget, negotiate with creditors, and administer Debt Management Plans. Avoid for-profit debt settlement companies charging 15-25% fees—stick with accredited non-profits charging $0-$75 setup and minimal monthly fees.

Wage Garnishment allows creditors to seize a portion of your paycheque directly from your employer after obtaining a court judgment. Federal law limits garnishment to 50% of wages for consumer debts in most provinces. Filing a consumer proposal or bankruptcy immediately stops all wage garnishments through the Stay of Proceedings protection. Your employer receives notice within 5-7 business days that the garnishment must cease.

Collection Agency purchases or pursues delinquent debts on behalf of original creditors. They operate under provincial Collection and Debt Settlement Services Acts, which restrict calling times (generally 7am-9pm weekdays, 9am-9pm weekends), prohibit harassment, and require written validation of debts. Collection agencies cannot sue you themselves—they must return the account to the creditor or purchase it outright. Consumer proposals and bankruptcies force collection agencies to stop all contact immediately.

Statute of Limitations sets the deadline for creditors to sue you for unpaid debts, varying by province: 2 years in most provinces, 6 years in others. Once expired, creditors cannot obtain court judgments forcing you to pay, though the debt still exists and appears on your credit report for 6 years from last activity. Making any payment or acknowledging the debt resets this clock, so consult a Licensed Insolvency Trustee before paying old debts.

Provincial Consumer Protection Acts establish additional rules beyond federal law. Quebec’s 5% minimum credit card payment rule (effective August 2025) forces faster repayment than the 2.5-3% standard elsewhere. British Columbia and Ontario have specific debt settlement company licensing requirements. Alberta restricts collection call frequency. These provincial variations affect your debt consolidation strategy depending on where you live.

Check your personalized debt relief options and credit impact—confidential assessment, no credit check

Advanced Terms for Comparison Shopping

Amortization Period is the total time to repay a loan in full through regular payments. Longer amortization means lower monthly payments but more total interest. A $15,000 loan at 10% APR amortized over 36 months costs $484/month and $2,415 in interest. Stretch it to 60 months and you pay $319/month but $4,140 in interest—$1,725 more for the privilege of smaller payments.

Prepayment Penalty charges you a fee for paying off a loan early. Some consolidation loans allow 10-20% annual prepayment without penalty; others charge 3-6 months of interest if you pay off the full balance early. Always check prepayment terms before signing—the best loans have no penalties, letting you save interest by paying faster when you have extra money.

Fixed vs Variable Interest Rates: Fixed rates stay constant for the entire loan term, giving you predictable payments. Variable rates fluctuate with prime rate changes—if prime drops, your rate drops; if prime rises, you pay more. Most Canadian consolidation loans offer fixed rates. Variable rates make sense only if you can tolerate payment increases and believe rates will decline during your loan term.

Debt Service Ratio measures housing costs plus all debt payments against gross income. Lenders use two ratios: GDS (Gross Debt Service) includes housing costs only, typically capped at 32% of income; TDS (Total Debt Service) adds all debts, capped at 42-44% of income. Exceeding TDS limits blocks mortgage and consolidation loan approvals—you must reduce debt before qualifying.

Exempt Assets are possessions creditors cannot seize in bankruptcy, varying by province. Most provinces protect necessary clothing, household furnishings up to a value limit ($5,000-$7,500), one vehicle up to a certain value ($5,000-$7,000), tools of trade, and a portion of home equity in some provinces. Understanding exemptions helps you assess whether bankruptcy or consumer proposal protects more of your assets.

Real-World Application Scenarios

Consider Rachel from Halifax earning $58,000 annually with $29,000 in credit card debt across four cards at 18.9-21.5% APR. Her credit score sits at 685—decent but not great. Minimum payments total $725/month, mostly covering interest, trapping her in 9+ years of payments. Her DTI calculates to 15% (manageable), qualifying her for bank consolidation.

She applied for a 60-month consolidation loan at 9.5% APR, paying $605/month—$120 less than minimums. Total interest drops from $22,000 to $7,300, saving $14,700. Her credit score dipped 8 points from the hard inquiry but recovered within 7 months. She’s debt-free in 5 years instead of 9+, and her credit improves as she closes in on zero balances.

Now contrast that with Michael from Saskatoon earning $44,000 with $51,000 in unsecured debt—credit cards, lines of credit, a payday loan. His credit score dropped to 590 after missing three payments when his hours got cut. His DTI hit 58%, immediately disqualifying him from any bank loan. Minimum payments required $1,275/month on $3,667 monthly income—mathematically impossible.

A Licensed Insolvency Trustee filed a consumer proposal offering creditors $17,000 over 60 months ($283/month). His DTI dropped to 9.3%, actually affordable on his reduced income. Creditors holding 78% of his debt voted yes within 45 days. Collection calls stopped within one week. The R7 notation hit his credit report but he was already at 590—the proposal prevented bankruptcy (R9) and gave him a realistic path out. In 5 years he’ll have paid $17,000 instead of $51,000, saving $34,000 and clearing the R7 three years after his final payment.

Both strategies work. Your income, credit score, and debt-to-income ratio determine which path makes financial sense. DTI under 44% with credit above 650 = consolidation loan. DTI over 45% or credit below 600 = consumer proposal or Debt Management Plan territory.

The terminology matters because lenders, trustees, and credit counsellors assess you using these exact metrics. Walking into a consultation knowing your DTI, credit score, and the difference between R7 and R9 ratings transforms you from confused debtor to informed negotiator. You understand what you qualify for before anyone tries to upsell you into a worse solution.

Your next step depends entirely on those numbers. Calculate your DTI today. Pull your free credit report from Equifax or TransUnion. Identify whether your debt is secured or unsecured. Then contact either a bank for consolidation quotes (if your numbers qualify) or a Licensed Insolvency Trustee for a free assessment (if your DTI exceeds 44% or creditors are threatening legal action). Understanding these 47 terms gives you the vocabulary to ask the right questions and avoid expensive mistakes that trap you in debt longer than necessary.