This page sets out a plan for getting out of debt in Canada, in the order most people work through it: list what you owe, choose an order to pay it off, find money for payments above the minimum, lower the interest where you can, and bring in outside help if the numbers don’t work. Each step links to the guide that covers it in depth, and the debt strategies hub lists every guide on paying off debt, getting relief and dealing with collectors.
Step 1: List every debt
Write down each debt with five details: the lender, the balance, the interest rate, the minimum payment and the due date. Statements and your Equifax and TransUnion credit reports will turn up accounts that are easy to forget, such as an old store card or an overdraft. The list shows the total owed, the total of the minimum payments, and which balances cost the most each month.
The list also shows whether the debt has become a problem. These are common signs:
- paying only the minimum on credit cards month after month;
- using one card or line of credit to pay another;
- borrowing for everyday costs such as groceries or rent;
- getting calls from collectors;
- being unable to put anything into savings;
- debt payments taking a large share of income (the debt-to-income ratio guide shows how to measure it and the ranges lenders work with).
If several of these apply and the minimum payments are already hard to cover, Step 6 is the more realistic starting point.
Step 2: Choose an order to pay it off
Every debt gets its minimum payment, and any extra money goes to one target debt at a time. The two common ways to pick the target are the avalanche method (highest interest rate first, which costs the least interest) and the snowball method (smallest balance first, which clears whole accounts sooner). Debt avalanche vs snowball works through both on the same set of debts, and the debt payoff calculator shows the payoff date and interest for your own list under either method.
When a target debt is paid off, its payment rolls into the next one, so the amount going to debt each month stays the same while the number of accounts shrinks.
Step 3: Find money for payments above the minimum
The payoff date depends mostly on how much goes to debt each month beyond the minimums. Common sources are:
- recurring costs that can be cut or renegotiated, such as subscriptions, phone and internet plans, and insurance premiums;
- grocery and dining spending, tracked for a month or two to see where it goes;
- one-time money, such as a tax refund, a work bonus or selling things no longer used;
- extra income from more hours or a side job.
A written budget makes the amount repeatable rather than a one-off; budgeting basics covers how to set one up. Many plans also keep a small cash cushion so that a car repair doesn’t go straight onto a credit card; the emergency fund calculator helps size it.
Step 4: See what a bigger payment does
Take a balance of $20,000 at 20% a year, with interest charged monthly, paid with a fixed $400, $600 or $1,000 a month. The first month’s interest is $333, so a payment has to be larger than that before the balance starts to fall.
| Monthly payment | Months to pay off | Total interest paid |
|---|---|---|
| $400 | 108 | $23,360 |
| $600 | 49 | $9,436 |
| $1,000 | 25 | $4,530 |
The months come from the standard loan formula: months = log(payment ÷ (payment − monthly interest)) ÷ log(1 + monthly rate), rounded to the nearest month. Total interest is everything paid over that time, less the starting balance. The largest payment costs a fraction of the interest of the smallest, because the balance spends far less time growing at 20%.
The same arithmetic is why a card paid at the minimum takes so long to clear: the minimum payment calculator shows the timeline for a card balance, and paying off credit card debt covers card-specific tactics.
Step 5: Lower the interest rate where you can
A lower rate means more of each payment reduces the balance. The main routes:
- A debt consolidation loan replaces several high-rate balances with one fixed payment. It helps when the new rate is clearly lower and the paid-off cards aren’t run up again; debt consolidation loans explains how it works, when it saves money and where to borrow.
- A balance transfer card moves card balances to a low promotional rate for a set period, usually for a transfer fee; balance transfer credit cards compares them.
- Home equity, for homeowners, can carry a lower rate but puts the home behind the debt; consolidating debt with home equity covers HELOCs and refinancing.
- Asking the lender. Card issuers and banks sometimes lower a rate, waive fees or set up a hardship plan on request; how to negotiate debt covers what to ask for and how to get it in writing.
Turning card balances into a loan backed by a car or a home changes what a lender can take if payments stop; secured loans explains the difference.
Step 6: Get help when the plan doesn’t add up
If the list from Step 1 shows that the minimum payments can’t be covered, or that the debt can’t realistically be repaid in a few years, the options move from payoff methods to formal help:
- Non-profit credit counselling reviews the budget for free and can set up a debt management plan: one monthly payment through the agency, often with interest reduced or removed by the creditors who agree to it. See credit counselling in Canada.
- A consumer proposal or bankruptcy, filed through a Licensed Insolvency Trustee, is a legal process that can reduce or release the debt. See consumer proposal vs bankruptcy.
- Comparing every option side by side, including the do-it-yourself routes above, is the job of the debt relief options guide.
If bills are already being missed, what to do when you can’t pay your bills covers which ones come first. If a debt has gone to an agency, your rights with debt collectors covers what collectors may and may not do.
Free and low-cost help in Canada
| Resource | What it offers | Cost |
|---|---|---|
| Non-profit credit counselling agencies (for example Credit Counselling Society, Credit Canada) | Budget review, debt management plans | First session free |
| Licensed Insolvency Trustee | Review of every debt option, consumer proposals and bankruptcy | First consultation often free |
| 211 | Referrals to local financial, housing and food help | Free |
| Financial Consumer Agency of Canada | Plain-language guides on debt and on your rights with banks | Free |
How your debt compares
Comparing a balance with national averages says little about whether it’s manageable; income and interest rates matter more. For the national figures, average household debt in Canada has the Statistics Canada numbers by debt type, age and province.
Particular situations
- Student loans have their own interest rules and repayment help; see how to pay off student loans.
- Moving abroad doesn’t cancel Canadian debt; see leaving Canada with debt.
- A death in the family raises the question of who pays what’s left; see what happens to debt when someone dies.
- Stress and anxiety often come with debt; the debt and mental health guide lists free support.