How to Get Out of Debt: Comprehensive Guide

What Does It Mean to Be in Debt in Canada?

Being in debt in Canada means owing money to another party because you make purchases you could not otherwise afford. It may lead to you feeling overwhelmed with financial obligations like rent or mortgage payments, student loans, credit card balances, and personal loans.

The good news is that you can break the cycle. Learn how to stop being in debt in Canada with Credit Canada.

Credit Card Debt Relief

Canadian banks are now charging 19.99% - 25.99% interest on their most popular credit cards. If you’re only making minimum payments or can’t pay your balance in full each month, those interest charges quickly pile up, making it feel impossible to get ahead.

The good news is you don’t have to do it all at once. Trying to pay off debt, save money, and invest simultaneously can feel overwhelming and cause unnecessary stress. Instead, focus on one step at a time to reduce anxiety and build financial stability over time.

Consider the Priority Pyramid. Start with solidifying your cash flow. Once your income and expenses are under control, shift your focus to debt repayment.

Take a look at all your credit cards and identify which ones have the highest interest rates and balances. Our free Debt Calculator can help you calculate your debt and also help you better understand how long it will take to pay them off based on interest rates and your current payments.

Once you have a clear picture of what it will take to pay off your credit card debt, consider the avalanche or snowball method to provide a plan and structure for your payments.

Student Loan Debt

Estimates put the average Canadian student loan debt at graduation at $25,200, with tuition fees increasing each academic school year. While 64% of Canadian students say they have a budget to track expenses, only 41% of them say they actually follow it on a regular basis.

If you’ve already graduated but are having trouble paying off your student loan, you may be able to revise your terms with your lender, changing the amount you pay per month or changing the length of time you have to repay it. You might qualify for a student loan Repayment Assistance Plan where you can receive student loan forgiveness for a portion of your loan. You can also consider a debt consolidation loan, though there are disadvantages you should be aware of, such as higher interest rates and paying more interest over time.

If you’ve tried these student loan debt solutions without luck, you may want to consider a Debt Consolidation Program; however, this is only possible if the student loan is already in collections.

If you have other unsecured debt, this will allow you to roll all your other unsecured debts into one lower monthly payment, making all payments more affordable and manageable—including your student loan.

How to Make a Monthly Budget

Regardless of your debt type, budgeting will be necessary to start paying down your debt. Creating and implementing a monthly budget allows you to clearly see how much money you have coming in versus how much is going out. Armed with this information, you can look at expenses you can cut out completely or at least cut corners on.

Budgeting isn’t just about cutting costs in the short term; it’s about building a long-term money-management plan. The sustainable spending method is a three-step process to build financial health, effective for those in debt, on a low income, or those just looking to take better control of their finances. This method has three steps:

Analyze your income, debts, and expenses.
Brainstorm ways to improve your cash flow, including cutting costs and increasing your income.
Change your habits for long-term success by choosing one or two things to take action on.

Analyze

Start by using our free Expense Tracker to analyze your income, expenses, and debt. The tracker will also show you how your spending compares to general guidelines and how long it will take for you to pay your debt based on interest rates and current payments.

Download our free budgeting app, Butterfly, to build a sustainable budget in less than 20 minutes.

Brainstorm

When brainstorming improvements, write down all of your ideas. This might include downsizing your home or getting a room-mate, selling your car and switching to public transportation, or taking on a side hustle to increase your income. Here are some additional ideas that could add up to big differences:

Sell unused items online

Got old hunting and fishing gear in the garage or outgrown kids’ clothes and toys in the attic? Turn them into cash on Facebook Marketplace, Ebay, or Poshmark.

Buy generic grocery and household items

This may seem like a no-brainer, but many people are addicted to name-brand goods as much as they are to their credit cards. But most store brand products are the exact same as their name-brand counterparts, just with different packaging. If the ingredients are similar, you’re not likely to notice the difference. Considering the rising prices of groceries and recent tariff implementations, applying this rationale could save you hundreds of dollars a month.

Use public transportation

Consider public transit to go to work or school, and take advantage of warmer days to bike or walk while you put your get-out-of-debt plan into action.

Reduce your mobile phone plan

Can you do without a few extra gigabytes of data? Have you shopped around for a cheaper plan that’s got everything you actually need? If you cut your phone bill even by just $10 a month, that’s $240 saved over a 2-year contract.

Insulate your home

Canada is known for its cold weather, and air sealing attics and basements can save you hundreds of dollars yearly in heating costs (and keep you warmer). If you’re handy around the house, do it yourself to save even more.

Cancel or reduce your gym memberships and magazine subscriptions

Are you using your expensive gym membership to its full potential, or is there a lower-cost option you could consider? Are you reading those magazines or just catching up on the latest news and gossip on your phone? Get rid of any unnecessary subscriptions and memberships to boost your monthly savings.

If these tips aren’t saving you enough money to make a dent in your debt quickly enough, consider a part-time job. Depending on the company you work for, you could even get discounts on food, clothing, or other essentials to help lower your everyday expenses. If you don’t have the ability to take on another time-intensive job, consider the Art of the “side hustle”—such as picking up work as an Uber driver or dog walker.

Commit to Change

After you’ve decided which changes you want to make, create a plan to commit to them.

Choose 1-2 high-impact changes you want to make from your brainstorming list and take action.

How to Pay Off Debt

Snowball Method

With the snowball method, you pay off the debt with the smallest balance first, regardless of the interest rate, while still making minimum payments on all your other debts and credit cards. Once that balance is paid off in full, you move on to the next smallest debt, and so on. Some people prefer this method for paying off debt because you can eliminate smaller debts very quickly, depending on how small the balance is, which can be very motivating, especially when you’re just starting to take back control of your finances. Having these quick wins upfront can help you stay motivated to continue to pay off your other debts.

Avalanche Method

With the avalanche method, you focus on paying the debt or credit card with the highest interest rate first, while again maintaining your minimum monthly payments on all your other debts and credit cards. Once it’s paid off in full, you move on to the next highest-interest rate card. Although this strategy doesn’t usually offer the immediate gratification of paying off a card balance quickly, you save more money in the long run on interest payments piling up.

Both the snowball and avalanche methods have their pros and cons. It really comes down to your own personal finances and, to an extent, your personality. One important thing to remember when choosing either one of these approaches is to make additional payments whenever you can beyond the minimum payment. You could save yourself hundreds of dollars in interest costs.

If your debts are just too overwhelming, a credit counselling agency like Credit Canada can advise you on the best course of action for your unique situation. This might include revising your budget, a debt consolidation program (DCP) or debt consolidation loan.

Debt Consolidation

Debt consolidation is the process of combining your debts into one manageable payment. There are a number of different ways to do this. For example, you can consolidate your debt with a home equity loan, a line of credit, credit card balance transfers, or debt consolidation loans. It’s important if you go this route to ensure that you stay disciplined with your payments and avoid taking on any new debt; that will defeat the purpose! One other key point is that these options won’t be available to everyone; poor credit can impact your ability to qualify.

A Debt Consolidation Program (also often referred to as a Debt Management Plan or DMP) is another option to help you reduce your debt. A Debt Consolidation Program is a customized plan offered by non-profit credit counselling agencies, such as Credit Canada. It combines all your unsecured debt, such as credit card debt and payday loans, into one lower monthly payment. A Debt Consolidation Program also eliminates or significantly reduces the interest on your debt, and once it’s in place, you will no longer receive collection calls.

You must work with a credit counselling agency to access this service. You’ll receive free, one-on-one counselling with a certified Credit Counsellor who will support you along your journey to becoming debt-free, giving you budgeting advice specific to you and your needs. Best of all, you’ll finally see the light at the end of the tunnel. With most Debt Consolidation Programs, you can be out of debt within 3-5 years!

Finding the Best Debt Consolidation Agencies in Canada

Once you’ve decided it’s time for help managing your debt, there are some important considerations to keep in mind.. Unfortunately, some companies may take advantage of you when you’re in a financial crisis. To make sure you’re working with only the best debt consolidation agency, you’ll want to be sure to take each of the following steps:

Ask About Fees

A reputable debt counselling agency won’t charge you much, if anything for advice and to get started . An initial set-up fee should cost no more than $50, and they shouldn’t charge more than 10% in administration fees.

Ask if they’re a non-profit organization

Non-profits aren’t out to make money—they simply want to make a positive impact. Companies will typically indicate if they are a non-profit organization somewhere on their website. However, if this information is not easily found, calling the organization and asking should do the trick.

Check for accreditation

Accredited agencies must meet industry standards set by the Association for Financial Counselling & Planning Education (AFCPE) and Credit Counselling Canada (CCC).

Check their Better Business Bureau (BBB) rating

The BBB rates companies, including debt consolidation organizations based on complaints from the public, as well as government licensing, advertising policies, and more. You can check a company’s BBB status on the BBB website.

Check reviews

You can easily find reviews online, and you may want to check if the organization has been mentioned positively or referenced in publications, as this could be a sign that the organization is one you can trust.

Credit Canada has a 4.9 rating on Google and Trustpilot. View our client testimonials here.

What Our Clients Say About Our Counsellors

Today I had my assessment with Randolph and he is going to be able to help me have a brighter financial future. Having someone like Randolph who took his time to explain everything and make sure I was able to understand it was just amazing. I would like to thank you and your team for helping me take the first step.

- Darlene Salmon

Randolph Taylor Credit Counsellor Learn More →

Sandy is absolutely incredible. I had the pleasure of working on a Debt Management Program with her 2.5 years ago. She taught me financial skills, budgeting, learning to work with my money, and motivated me to reach my goal. I paid off $10,000 in debt in 9 months. Today, after my 2-year mark, she wrapped up my account and helped me with credit building options for the future. So relieved, grateful and happy I had the opportunity to work with Sandy and Credit Canada.

- Kaitlyn Ouimette

Sandy Daykin Credit Counsellor Learn More →

I had tried another place before coming here and the difference in time and knowledge was like night and day. Cathy was so insightful and didn't rush me out the door, or make me feel like any question I had was dumb. She really helped direct me on the road of debt recovery and I felt empowered leaving her office. Thank you.

- Melissa DiCicco

Cathy Plowman Credit Counsellor Learn More →

I would like to thank the staff at Credit Canada, especially Randolph for his patience, professionalism and for making the experience a lot less intimidating than I thought it would be. I would definitely recommend Credit Canada to anyone who has gotten themselves into an awkward financial situation and needs to know how to deal with it. Look no further.

- Gail Anne GR

Randolph Taylor Credit Counsellor Learn More →

If you're experiencing issues with your debt, this is the place you need to contact. I have nothing but great things to say about Credit Canada and specifically my Credit Counsellor, Jean Riddell. She went above and beyond helping me get my situation corrected. Thanks again Jean!

- James Steel

Jean Riddell Credit Counsellor Learn More →

How to Stay Debt-Free

So, what happens after you finally pay down your debt? You celebrate! This is a huge accomplishment worth celebrating. It takes focus, discipline and a lot of hard work. Staying debt-free has less to do with your income or investments and more to do with your everyday spending habits and approach to money. Here are some financial habits to keep yourself out of debt.

Pay your balance in full every month on time.

This will help you avoid those dreaded interest fees and also help raise your credit score.

Set up automatic payments.

This ensures you never miss a payment, so you avoid late fees and protect your credit score. Remember, you can always make an additional payment, so if your automatic payment doesn’t cover the balance, manually pay the rest.

Download your credit card apps.

As you know, it’s easy to get carried away with credit cards. Being able to view your charges in real-time with just a glance at your phone will help ensure you don’t go over your monthly budget.

Never—and we mean never—get a cash advance.

That ATM ka-ching comes at a high price. Here are three reasons why cash advances are the ultimate no-no:

Transaction fees. You’ll pay not once but twice: one fee from the ATM and another from the credit card company.
Interest rates. The interest rate for cash advances is generally much higher than it is for purchases, usually hovering around 29 percent!
Immediate interest accumulation. Unlike making purchases on your credit card, interest adds up when the ATM spits out the cash. So, even if you pay your balance every month, you’ll still pay interest on that cash advance no matter what.

Set up an emergency fund

Whenever a true emergency arises (like car troubles or losing a job—not buying the latest smartphone), you can pull money from your own funds without reaching for the credit cards.

Analyze the Details

Being more responsible with your money means knowing what’s coming in and going out. Scrutinize every loonie spent and keep track of everything earned. Use an expense tracker to make this process easier. Collect receipts (physical and virtual) and review them either daily, weekly, or monthly.

Stay Practical

Comparison-shop, purchase high-quality used items (including cars) over new, don’t give in to labels and designer brands, and invest in quality items that serve multiple purposes for multiple seasons.

Stay Patient

They say “good things come to those who wait” and this is especially true for those who enjoy a debt-free lifestyle. Space out your purchases and give yourself enough time to save up to avoid racking up a mountain of debt all at once.

If you want something that’s not in your budget, set up a savings fund for it, wait until it goes on sale, or just say no altogether.

Remember your Goals

Set a clear intention and make a promise to yourself to stay accountable and committed to change. Then, create SMART goals (more on this below) to make your goals clear and within reach. Do your best to plan for the future, whether it’s something small like a vacation, a big expense like a child’s college fund, or a lifelong goal such as retirement.

Set Boundaries

Debt-free people live within their means. Spend less than you earn so they can maintain a savings account and an emergency fund. To do this, you may need to make sacrifices, but you’ll eventually be proud of yourself for your ability to set a budget and stick to your boundaries.

Educate Yourself

This doesn’t mean taking extra courses in school (although it can). Find resources to help you understand credit cards, their risks and benefits, and use them wisely (if at all). Speak with a certified Credit Counsellor to better understand your financial situation, read or listen to money management books, follow financial blogs and news, or watch financial programs. The more you learn about personal finance, the more confident and informed you'll be when making financial decisions. However, be cautious of 'finfluencers' on Instagram and TikTok—many are simply sharing opinions without any financial expertise. To ensure you're getting reliable advice, seek guidance from qualified professionals.

Manage Your Debt With SMART Goals

If our debt help management strategies and ideas have inspired you to start managing your money differently, or even consider debt consolidation, congratulations! It’s a giant step and it takes courage. Of course, financial debt can be difficult to manage if you’re already feeling the pinch, so it helps to set some reasonable goals. For example, if your goal is to be debt free by the end of the month, that’s probably a bit too ambitious. After all, it’s called debt management for a reason, so if you’re ready for debt freedom, you’ll want to set SMART goals. SMART goals are:

Specific

Identify who needs to be involved in the goal, what you want to accomplish and why, where the money will go, and why the goal is important to you.

Measurable

Apply specific numbers to your goal (e.g., how much, how many, etc.) to help keep yourself on track.

Attainable

Make your goals challenging but achievable, otherwise you’re setting yourself up for further financial frustration and disappointment.

Relevant

Decide which goals are most important to you and focus on those first; secondary goals can come later.

Time-Bound

Set your target date for when you’ll achieve your goal, but make it realistic.

How to Get Out of Debt: A Comprehensive Guide

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