Got a lot of credit card debt in Canada? You’re not by yourself. With the average Canadian owing $4,681 and interest rates up to 30%, moving fast can save you a lot. Here are five short cuts to take over your money matters:
- Make a Budget: Note down what you earn and spend. Use apps like YNAB or KOHO to find more cash for paying off debt.
- Pick a Way to Pay Off Debt: Choose either the debt avalanche method (pay the highest interest debts first) or the debt snowball method (start with the smallest debts).
- Put Your Debt in One Place or Move It: Make payments easy with a card that has 0% interest for a while or get a loan to mix all debts into one.
- Pay More Often: Send payments more often or use extra money to cut down interest and get rid of debt quick.
- Get Help: Talk to credit advisors or Licensed Insolvency Trustees to know more about payment plans or legal choices.
Short Look: Avalanche vs. Snowball Ways
| Way | Main Point | Good At | Good Things | Bad Things |
|---|---|---|---|---|
| Debt Avalanche | Top interest rate | Less money spent on interest | Cuts down on total interest | Slow start to debt drop |
| Debt Snowball | Tiny debt first | Quick feel-goods | Quick wins, gains speed | Ends up paying more interest |
Key Tip:
Adding just a bit more cash each month can really cut down how long you need to pay back what you owe. For instance, if you pay an extra $50 on a $1,000 debt with 20% APR, you can slash years off the time you are in debt.
Start now to get back your financial freedom. The sooner you begin, the more money you’ll keep!
How To Pay Off Credit Card Debt (I Wish I Knew This)
1. Make a Budget
Knowing how much money you get and use each month is key to finding more cash to deal with what you owe. As the Financial Consumer Agency of Canada puts it:
“A budget is a plan that helps you manage your money. It helps you figure out how much money you get, spend and save. Making a budget can help you balance your income with your savings and expenses. It guides your spending to help you reach your financial goals.” [1]
Making a budget can show hidden ways to move money to debt pay off. Many people in Canada find extra money in their budgets after they look closely at how they spend. This clear view is a great first step in handling debt well.
Keep Track of Money In and Out
Start by noting down all income and every cost – even the small ones. Write down all money from your job, side jobs, government help, and freelance work. For costs, include fixed ones like rent, utilities, and insurance, as well as changing costs like food, eating out, and fun.
Small, daily buys can build up quicker than you might think. For example, $3 on coffee daily reaches more than $1,000 a year [1]. After you track your money flow, split your costs into two parts: needs (must-haves like a place to live and food) and wants (extras like streaming or takeout) [1]. This division helps find where you can spend less.
Pay Off High-Interest Debts First
Debt with high interest grows fast, so it’s wise to pay these off first. With an average rate of 19.99%, more than half of each small payment often covers just the interest, not the main debt [4]. For instance, paying just a bit more than the least on a $1,000 debt at 20% APR can cut your payoff time from nearly 11 years to just over 1 year. That saves you a lot in interest over time [4]. Even little extra payments can mean big savings.
Use Canadian Budgeting Tools
Use tools made for Canadian money needs. Apps like YNAB, KOHO, and PocketGuard link to your bank and sort your spending automatically [3]. Many of these apps have free versions for basic tracking, open to all [2].
For a custom way, try Wealth Awesome’s free calculators and budget tools, made for Canadians. These tools use Canadian money and tax settings, which is very useful.
The key part is to use your chosen tool regularly. Staying on track helps build better money habits.
A clear, well-set budget is a strong tool against credit card debt. Once you know where your money goes, you can better move money toward paying down your debt.
2. Pick How to Pay Off Debt
After you set your budget, the next step is to choose how to pay off your debt. In Canada, with normal debt over $21,000 [6], picking the right plan is key. Two common choices are the debt avalanche and the debt snowball. Each plan has good points, so pick one that fits your money needs and aims.
Debt Avalanche Method
The debt avalanche method aims to clear the highest-interest debt first, no matter the amount. First, list all your debts by rate of interest, from high to low. Then, put any extra money into the debt with the top rate while still paying the least amount on the others.
This way, you save money on interest over time. For example, paying off a 19.99% credit card before a 6.5% line of credit can cut down the total interest you pay [7].
“The debt avalanche allows you to save more money in the long run, but you may have to wait a bit longer to see individual accounts paid in full. Applying the avalanche method requires patience, focus, and trust in the process.” – Anna Guglielmi, Credit Counsellor, Credit Canada [8]
The avalanche way is often the best way to get rid of debt. In one case, it saved $1,341 in interest and cut a month of payments over the snowball way [7]. But, it needs you to wait – mainly if your biggest debt with the highest interest also has a big amount. You might wait some time before you feel good about fully paying an account.
Debt Snowball Way
The debt snowball way, on the other hand, aims to clear your smallest debt first, no matter the interest rate. Line up your debts from the smallest to the biggest amount, and put all extra money into the smallest one while still paying the least you must on the others.
This method is about getting a push. Clearing a small $1,000 store card fast can feel great, pushing you to face bigger debts.
“The idea of tackling your debt quickly is appealing and motivating. This method is beneficial for people who need to see smaller wins and are motivated with managing fewer accounts.” – Anna Guglielmi, Credit Counsellor, Credit Canada [8]
The snowball way is good when you have many small debts in different spots. You shut each account one by one, which makes your money matters easy, and you keep your drive up. The downside? You may end up paying more money as interest over time because you’re not taking care of the biggest debt first.
Look at Both: Avalanche vs. Snowball
Here’s an easy look at how these two ways stack up for people in Canada:
| Method | Main Point | Best For | Good Points | Bad Points |
|---|---|---|---|---|
| Debt Avalanche | Top interest rate | Those who want to save cash | Cuts interest costs; fast debt end | Needs time; slow start |
| Debt Snowball | Least balance | Those who like fast wins | Uplifting; makes managing easy | More interest to pay; takes more time |
For example, here’s how these plans might rank four usual debts in Canada:
| Priority | Snowball Way (By Money Owed) | Avalanche Way (By Interest) |
|---|---|---|
| 1st | Store Card ($1,000) | Store Card (29.9%) |
| 2nd | Line of Credit ($8,000) | Mastercard (19.9%) |
| 3rd | Visa ($12,000) | Visa (17.9%) |
| 4th | Mastercard ($15,000) | Line of Credit (6.5%) |
What you pick hangs on your own way and what drives you forward. If fast wins pump you up, then the snowball method could be the best path. But if holding on to more money is key for you and you can keep your eye on far goals, then the avalanche way may let you keep more money.
“Whatever you choose, remember, the only wrong way of repaying debt is to not pay it!” – Credit Canada [8]
The true thing is to pick a way and stay with it. Being steady is what gets you to win.
3. Put Together or Move Your Debt
Putting all your high-interest debts into one can be a clever way to make payment easier and cut down on costs, more so when used with payoff plans like the avalanche or snowball methods. If dealing with many high-interest debts feels too much, bringing them together or moving them could make everything simpler and cost you less. Though both ways turn your debts into a single, easy-to-handle payment, they work in different ways and fit different needs.
“Two popular ways to consolidate debt include a balance transfer credit card or a personal loan.” – NerdWallet [11]
Balance Shift Cards
Shifting your current card debt to a new card with less cost in interest can help save money. Many cards give a no-interest time for about 15 to 21 months.
Say, moving $5,000 could cut costs a lot. Borrowell says moving this cash from a 19.99% rate card to one with 0% for a time (plus a 3% shift cost) might keep $824.96 in your pocket over a year [15].
Things to remember: Most cards take a fee of 1% to 5% of the amount you move, with the general fee about 3%, says Consolidated Credit Canada [14][16]. Also, you need very good credit to get the best deals.
“A balance transfer credit card can be a useful tool for paying down debt quickly, but it’s important to approach it carefully to avoid worsening your financial situation.” – Cory Santos, Expert at Consolidated Credit Counselling Services of Canada [16]
Tips to Win: Only use the new card to pay back the moved debt. Try to clear the debt before the low-interest time ends to dodge high rates. Also, keep in mind, most banks won’t let you move debt from one of their cards to another [17].
If you owe money in different ways or have more than what a balance move can cover, a debt consolidation loan may work better.
Debt Consolidation Loans
A debt consolidation loan is a loan that helps pay off many debts. Instead of many bills each month, you just pay one set amount each term. This length is often from one to seven years [11]. It’s good for large or mixed non-secure debts and open to all credit groups.
How it works: First, list out all you owe, like what each debt needs each month and their interest rates. Next, look for a loan with good terms [20]. When you get it, use the loan to clear your debts fully.
Costs to think on: These loans often have a first fee from 1% to 10% [11]. Even with a set interest rate to make planning easy, taking longer to pay may lead to more interest cost over time [12].
“The solution that worked for a family member or neighbour may not necessarily work for you.” – Jeffrey Schwartz, Consolidated Credit’s executive director [19]
Stay Clear Of: If the loan’s rate goes over 10% [18], don’t mix debt. Also, try not to bring in new debt while you pay back the mixed loan [18].
Look At: Moving Balances vs. Mixing Loans
| Feature | Balance Transfer Card | Debt Consolidation Loan |
|---|---|---|
| Best for | Just credit card debt | Many kinds of unsecured debt |
| Credit needed | Good to top-notch | All credit types |
| Interest rate | None at start, then goes up | Same rate all the time |
| Fees | 3% to 5% for moving debt | 1% to 10% start-up fee |
| Repayment time | 15–21 months (start no interest) | 1 to 7 years |
| Payment flexibility | Least amount needed each time | Same amount each month |
| Borrowing limit | Depends on credit limit | Up to $200,000 [13] |
When making a choice, think about things like what kind of debt you have, how long it will take to get rid of it, and the full cost [11]. Moving your balance is often best for small credit card debts that you can pay off in a short sale time. But, getting a loan to pay off all your debts might work better for big or mixed debts that take more time to clear.
Before you decide, check your credit history to see if you can get a low interest rate [12]. Look at different deals, but remember that too many applications in a short time can hurt your credit score [12].
Both ways can help your credit score if you pay on time and cut down what you owe [12][15]. The main point is to pick the plan that fits your money needs and keep to your payment schedule as part of a larger plan to get out of debt.
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4. Up Your Payments
Giving more money or paying more times can help you get rid of credit card debt quick. Even small lifts to how you pay can keep a lot of money in your pocket over time.
Pay More Times
Don’t just pay once a month, think about paying every week or every two weeks. Credit card interest adds up every day based on your daily balance. By paying more often, you can cut this balance all through the month, which means less interest builds up.
“While you can’t change your interest rate, you can lower your average daily balance by making multiple payments throughout the month.” – NerdWallet Canada [21]
Let’s say you cut down a $1,000 debt by $500 mid-way in a 30-day bill time. Then your daily mean debt goes down from $1,000 to $750 [22]. In the same way, if you pay $250 each week on a $10,000 debt, it could keep more than $100 in your pocket from what you would have paid in interest after one year [23]. With the mean credit card rate in Canada at about 19.99% [22], this plan can help you a lot.
“By making multiple payments on a more frequent basis, you’ll decrease your average daily balance and effectively reduce your interest rate.” – Ratehub Staff [22]
Set up auto-pay that matches when you get paid [22][23].
After changing how often you pay, find ways to get extra cash for your debt. Little changes help a lot. For example, less coffee shop trips, cook at home more, and hold off on big buys till you manage your debt better [9][25].
Using cash for daily buys is smart too. Studies say you spend up to 56% more with credit cards than cash. At places like vending machines or events, it could double [24]. Using cash, the average Canadian house could save over $3,000 a year, which is more than the $400 they may lose in rewards [24].
To up your money, think about extra work, side gigs, or renting out space. Even small sums help a lot with debt [24].
Smart shopping saves money too. Buy sale items and cut down store visits. A family of four might save from $2,300 to $2,900 a year [24].
Use Loyalty Points for Costs
Loyalty rewards help with debt too. Use Aeroplan or PC Optimum for daily costs to help pay off debt. Rewards come as points, miles, or cashback. For instance, a card with 2% cashback on $2,000 a month can get you $480 a year [26]. Use rewards not as extra cash, but to cut down costs.
Cashback cards help because you use rewards on card balance or things like food and gas. Points and miles are good for trips, but cashback helps right away with debt.
Use rewards well. Use PC Optimum for food or Aeroplan for key trips. This way, money saved goes to lowing your credit debt.
If in debt, avoid high-fee credit cards from $120 to $700. Choose no-fee cards, so no extra costs are added to your debt [26].
5. Get Help from Pros
If you’ve tried making a budget, ways to pay off debt, or joining debts and still can’t deal with it all, it might be time to get help from a pro. In Canada, some pros can show you ways to pay back what you owe and keep you safe from the people you owe money to. Here are three main helps that can change things.
Non-Profit Credit Help
Non-profit credit help groups are a big help for Canadians in debt. These places come up with Debt Management Plans (DMPs), which put all your debts into one easier monthly pay. Helpers work with you to check your money state and talk to the people you owe money to so they might lower interest rates, fees, and what you pay each month, to help you get out of debt.
Look at Credit Canada, for example. They’ve been around for over 50 years and have an A+ score from the Better Business Bureau. They’ve helped lots of Canadians. Their boss, Bruce Sellery, talks about what they aim to do:
“For over 50 years, Credit Canada has been working hard to help people get out of debt and back to what matters most to them in their lives. We are a non-profit and have helped millions of Canadians through credit counselling, financial coaching and education. Our impact is measured, not in dollars, but in the lives we’ve transformed, one person at a time.” [29]
In the same way, the Credit Counselling Society has helped over a million people in Canada deal with debt. They give free, secret talks with trained helpers, plus classes, online meets, and tools you can get from their site. While some groups may ask for a small one-time or month-by-month fee, these costs are low next to those of firms that aim to make a profit.
Licensed Insolvency Trustees
Licensed Insolvency Trustees (LITs) are the only pros in Canada who can legally handle bankruptcies and consumer offers. Given a license by the Superintendent of Bankruptcy, these trustees must stick to tight rules and a Code of Ethics, making sure they treat debtors and lenders fairly.
If you are up against tough lenders or need big help with debt, an LIT can show you ways like making a budget, putting debts together, making consumer offers, or going bankrupt. When you team up with an LIT, lenders must stop all calls and legal moves against you.
More people are looking for help from LITs now, with six in 10 Canadians worried about handling their debt and 39% afraid of going broke due to climbing interest rates. Grant Bazian, the boss of MNP LTD, notes this rise.
“Many are likely to rack up more debt to keep up with the cost of living and rising interest rates – but as interest rates rise, so will the cost of servicing some of those debts, making it more difficult to pay them down. It’s extremely hard to break free of that cycle once it begins.” [27]
LITs give out free first talks [28], and their fees for helping with money woes are set by the Canadian rule makers. This makes things clear and fair [27].
Free Help in Canada
There are also no-cost tools that Canadians can use. The Financial Consumer Agency of Canada (FCAC) gives tips on how to handle and sort out debt. Their site has easy tools like a Budget Planner and Financial Goal Calculator to help you plan how to pay your money back [31].
The Credit Counselling Society offers free classes and online talks about budgeting, dealing with debt, managing credit, and ways to save money [32]. With nearly half of Canadians worried about their own debt and one in four unable to pay all their bills each month, these aids can really help [32].
Big non-profit groups also help Canadians through free talks and learning programs, unlike the for-profit groups that often ask for a lot of money or push costly ways to deal with debt [30].
Getting help early is best. Whether you choose credit counselling, talk to a Licensed Insolvency Trustee, or use free government tools, having someone to help you can ease your money worries and lower stress along the way.
Conclusion: Take Control of Your Debt
“Climbing out of credit card debt can feel huge, but it’s not a must. Many in Canada have credit cards and face the same trouble [4]. The five ways we talked about give you clear steps to fix your money matters.
Start with a clear plan. Write down all you owe and make a budget – use the 50/30/20 rule to split your money for needs, wants, and saving or paying off debt [5]. This will show you where your cash goes and how to use it right.
When paying off debt, choose the method that fits you best. The debt avalanche method puts first the debts with high interest, letting you save on interest as time goes by, while the debt snowball method deals with small debts first, giving you quick wins to keep you going [5][34].
If handling many payments feels too much, think about changing your debt setup. Options like moving balances can give you lower interest for a short while, and loans that consolidate your debt provide a stable, long-time fix [5][34].
Even small raises in your monthly payments can change a lot. Paying just a tiny bit more every month can cut much time it takes to get out of your debt [33]. As Mike Bergeron, a Counsellor Manager at Credit Canada, wisely says:
“If you are dealing with debt, managing it head-on is always the best course of action. Ignoring it or sweeping it under the rug will only worsen things in the long run.” [35]
The facts show this: 38% of Canadians are trying hard to cut down on money stress by paying off what they owe [10]. Doing things like this not only lets you take charge but also builds good habits, like using cash to keep track of your spending [24].
FAQs
What is the difference between the debt avalanche and debt snowball plans, and how can I pick the right one for me?
The debt avalanche plan goes after debts with the high interest rates first. By doing this, you cut down the total interest you pay over time, which can save you a lot of money. On the other hand, the debt snowball plan focuses on clearing your smallest debts first. This approach gives you fast wins, which can really boost your spirit as you see those numbers drop one after the other.
When picking which way to go, think about your money goals and what drives you to keep going. If you want to save money on interest and think you can stay with a plan, the avalanche plan might be better for you. But, if seeing small debts go away fast makes you happy, the snowball plan could work better. Choose the plan that fits your needs and keeps you on track to a debt-free life.