How to Tell If Your Debt Level Has Become Unsustainable

Your debt level is too high when payments crowd out essentials, ratios exceed lending thresholds, or you borrow to cover basics. Here is how to measure it.

By Promissory.ca Editorial Team Reviewed against official Canadian sources Last updated: 2026-09-16

A debt level is never "too high" in the abstract. It becomes a problem when the payments attached to it start competing with the things you need to live, such as housing, food, utilities and transport, and when the numbers lenders use to judge affordability drift past what they consider manageable. Two households with the same total balance can sit in very different positions depending on income, housing costs and the terms of the borrowing.

This guide explains the two families of measures, debt-to-income and debt-service, shows what rising values tend to mean, and outlines the practical signs that a debt load has moved from manageable to urgent. It is general information only, not financial, legal or tax advice.

Why "Too High" Depends on Both Stock and Flow

Think of debt in two ways. The stock is the total you owe: credit cards, lines of credit, car loans, student loans, personal loans, mortgages, tax balances and any buy-now-pay-later obligations rolled together. The flow is what that stock costs you each month in required payments.

A large balance on a low-cost, long-amortization mortgage can be perfectly manageable. A much smaller balance on revolving credit can be crushing, because the required payment eats a bigger share of each paycheque. That is why you need both measures, and why a single headline number rarely tells the whole story.

The Two Core Measures to Calculate

Debt-to-income ratio

Your debt-to-income ratio compares total debt outstanding with gross annual income. Add up every balance you owe, divide by your income before deductions, and you have a ratio. There is no single legal ceiling in Canada; different lenders apply their own internal limits, and a ratio one lender views as acceptable may not pass another's underwriting.

What matters more than the single figure is the direction of travel. If the ratio climbs while income stays flat, the debt level is getting heavier relative to your ability to carry it.

Debt-service ratios

Debt-service measures look at monthly payments rather than balances. Lenders typically calculate two:

• Gross debt service (GDS): housing costs, including mortgage principal and interest, property taxes, heating and half of applicable condo fees, divided by gross monthly income.
• Total debt service (TDS): the same housing costs plus all other debt payments, divided by gross monthly income.

TDS is the more revealing number for anyone worried about overall debt, because it captures the full monthly claim on income, not just the mortgage.

The stress test behind mortgage qualification

Federally regulated lenders must qualify mortgage borrowers using a higher qualifying rate under OSFI Guideline B-20: the greater of the contract rate plus two percentage points, or 5.25%. If you would not qualify at that stressed rate, a lender is signalling that your debt level leaves little room for change.

A companion measure: debt-to-asset

Divide total debt by total assets to see how much of what you own is effectively financed by borrowing. It says nothing about cash flow, but it shows whether you are building equity or moving backwards.

Warning Signs Your Debt Level Is Too High

Ratios are useful, but behaviour often reveals the problem before the arithmetic does. Consider these qualitative red flags:

• You make minimum payments and balances still do not fall.
• You use credit, overdraft or buy-now-pay-later to cover groceries, rent, utilities or fuel.
• You cannot state your total debt without adding it up first.
• You avoid opening statements or checking balances.
• You borrow from one product to pay another.
• Your savings sit at zero and any surprise expense goes on credit.
• You are being declined, or offered only high-cost credit.
• Your entire paycheque is committed before it arrives.
• You are delaying or financing tax instalments because cash is tight.
• You have started to consider a payday loan for essentials.

Where Canadian Rules Change the Picture

High-cost short-term credit

The criminal rate of interest in Canada is 35% APR, reduced from 48%, under section 347 of the Criminal Code. Provinces with a payday lending regime cap the cost of a payday loan at $14 per $100 borrowed, cap the dishonoured-payment fee at $20, and limit a payday loan to $1,500 under the Criminal Interest Rate Regulations. The Financial Consumer Agency of Canada illustrates that a 14-day $500 payday loan at $14 per $100 costs $70, roughly 365% APR.

Quebec does not permit payday lending at all, and the maximum rate of credit there is 35% per year. If a short-term product is the only credit available to you, that is a strong indicator that your debt level has already crossed into the danger zone.

Mortgages and secured borrowing

Minimum down payment rules are 5% on the portion of price up to $500,000, 10% on the portion between $500,000 and $1,500,000, and 20% above $1,500,000. A down payment under 20% requires mortgage default insurance, and the maximum amortization for an insured mortgage is 25 years. Note also that under section 4 of the Interest Act, where a mortgage or agreement for sale provides for interest but does not state an annual rate, interest is not chargeable above 5% per annum.

If you are signing private lending paperwork, know that a promissory note is a written, signed, unconditional promise to pay a sum certain in money under Part IV of the Bills of Exchange Act. It is an enforceable obligation, not a formality.

Tax instalments as a signal

The Canada Revenue Agency may require quarterly income tax instalments on 15 March, 15 June, 15 September and 15 December when net tax owing exceeds $3,000, or $1,800 in Quebec, for a taxation year and either of the two preceding years; farmers and fishers have a single due date of 31 December. Relying on instalment debt to smooth cash flow is a sign that fixed obligations are already absorbing too much of your income.

How to Assess Your Own Position

1. List every debt and its balance, including informal family loans and tax arrears.
2. Record the minimum or required monthly payment for each.
3. Total your gross monthly income, before deductions.
4. Divide total debt by gross annual income for your debt-to-income ratio.
5. Divide total required debt payments plus housing costs by gross monthly income for your total debt service ratio.
6. Repeat the calculation every few months and watch the trend rather than the snapshot.
7. Stress-test: what would the payments look like if a rate rose or your income dropped?
8. Check your credit reports from Equifax Canada and TransUnion Canada for errors. A hard inquiry may affect your credit score, while a soft inquiry does not, and PIPEDA governs how organisations handle your personal information.

What to Do When the Numbers Say Too Much

Act on the most expensive debt first if you can sustain the payments, and consider whether consolidating into a lower-cost instalment loan would genuinely reduce total cost rather than simply stretching it out. Speak with a licensed professional, such as an accredited credit counsellor, a licensed insolvency trustee or a mortgage broker, before signing anything. Be cautious about any service that charges a fee to "fix" your credit file, and never pay for a loan before receiving it.

The Office of the Superintendent of Bankruptcy publishes information on insolvency options if the shortfall is structural rather than temporary, while the Financial Consumer Agency of Canada offers free, non-commercial budgeting and debt tools. Promissory.ca is a loan comparison and information site that connects visitors with licensed lending partners; it is not a lender and does not provide advice.