Debt is a fact of life for most of us. According to Statistics Canada, the average Canadian household owes about $1.79 for every dollar it has to spend. Learning how to manage debt is an essential part of life in this country — but how can you tell how much is too much, and how can you get started tackling seemingly overwhelming amounts of it? Easy Money went to Canadian debt experts for some answers.
Figure out what the problem is
Saying “yes” to borrowing is pretty easy. It’s not hard to rack up debt, and you shouldn’t beat yourself up if you have more debt than you can comfortably afford to pay back. But you should keep an eye out for the signs of having too much.
“There’s the emotional side and the practical side,” says Anne Arbour, the director of partnerships and education at the Credit Counselling Society, a non-profit Canadian financial educator. When you’re taking a second and holding your breath before opening a bill, or even avoiding looking at your account balance altogether, that’s a sign. “I think fear and anxiety is the first indication,” she says.
Practically speaking, if you’re juggling bills, relying more on credit, and “starting to play games, transferring [money] from one place to the other,” that’s a sign you’re spending more than you’re earning, she says.
In some cases, the primary cause of this issue might be resolved by cutting down your expenses. But it’s likely that debt has played some role, and part of getting back on firm financial footing will be addressing it.
When it comes to debt repayment, it’s important to make a budget if you haven’t done so previously, Léonie Laflamme-Savoie, a media-relations strategist with the Financial Consumer Agency of Canada, told TVO Today in an email statement that “reviewing their budget may help consumers repay their debt faster.”
The FCAC is the federal government body in charge of providing financial education to Canadians. It advocates putting “needs before wants” when it comes to cutting expenses, she writes — that way, debt can be resolved more quickly and at less cost.
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To get started with your debt, Laflamme-Savoie suggests making a list. Any area where you owe money and must pay it back counts as a debt, including mortgage, credit cards, loans from friends or family, and any unpaid bills.
While you’re making that list, note down the total amount of each debt, the minimum monthly payment, and its interest rate. You’ll need this info to decide what to prioritize. (If you’re having trouble remembering to pay debts on time each month, this is also a good opportunity to note the payment due date for each debt so you can create a reminder that works for you.)
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No matter how rocky your financial situation seems, taking a pragmatic look at things will help it get better: you have options for how to repay what you owe, and making a list will prepare you to review them. The Office of the Superintendent of Bankruptcy, which also offers financial information, has a comprehensive list of these steps, with more details on how to tackle each. Next, you need to figure out how you’ll approach your debt.
Decide on an approach
The basics of tackling debt are always the same: figure out how much you owe and to whom and how much you can afford to pay, and then try to reconcile those facts. But you can choose the approach to paying off debt that you’re most comfortable with.
Prioritizing debts with the highest interest rate first is common — they’re the ones that cost the most and can often be the most difficult to discharge because so much of each payment is going to interest. “Make the minimum payments on all the debts,” writes Laflamme-Savoie. “Then use any extra money to pay down the debt with the highest interest rate.”
But if you need an easy win, she suggests starting with the debt with the lowest balance. People doing that “will feel the accomplishment of paying off a debt sooner,” she writes. “This can keep consumers motivated to maintain their goal to become debt-free. However, this option may cost them more over time.”
If you’re not sure which debt is costliest or you’re having trouble deciding what to prioritize, the FCAC has a calculator that could help.
While you’re doing all this, make sure you use the info from the last step to ensure that you’re paying the minimum monthly amount on your loans. The interest you pay on anything less than this is often much higher, and not hitting these amounts will affect your credit score.
If you’re worried about missing a monthly payment, Laflamme-Savoie writes, contact your bank right away: It “may be able to offer temporary relief measures that are appropriate for [someone’s] circumstances and financial needs.”
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In general, the FCAC suggests contacting your bank as well as your creditors — the people you owe money to. You may be able to get a lower interest rate on your debt, plan a longer timescale on which to pay (an amortization period), or even get some help putting your debts together into one lower-interest loan (consolidation). Don’t be afraid to shop around, because you may be able to get a better deal with a different financial institution.
Make sure that whomever you’re working with is trustworthy and that you understand all costs of any money you borrow. Beware anybody who offers a quick fix for your issues, and watch out for sketchy debt advice. When in doubt, ask for a second opinion from someone you trust or even from a consumer-protection agency like the Better Business Bureau.
Seek (possibly free) help
We say it a lot at Easy Money: financial matters can be very complicated. It’s worth seeking expert help to figure out your cash conundrums. There’s a spectrum of options when it comes to debt planning, says Arbour, from doing it completely alone or relying on someone in your personal life to seeking varying degrees of assistance from a credit-counselling agency like the one she’s part of.
“We offer free no-obligation credit and budget counselling,” she says.
The Credit Counselling Society’s phone line is open Monday to Saturday. Officially, Arbour says, it offers service in English and French, but its operators speak many more languages, so you may be able to get help in other languages. It has counsellors who can help in the moment, or you can make an appointment. The FCAC has more information on credit counselling, like how to find other trustworthy credit counsellors, on its website.
Credit counsellors can help put together what’s known as a debt-management plan. They’ll talk to your creditors and may be able to reduce or eliminate the interest on your debts, Arbour says. That would mean your minimum payment on, say, a high-interest credit card would go entirely toward what you already owed.
You can reach out to credit counsellors even if you don’t yet know everything about your debt or you don’t have your taxes done. “They’ll ask for the numbers they need,” she says. “And they’ll be able to give some fresh eyes to the situation.” Whether your situation is simple or complicated, they can help you figure out what to do next.
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You can also consider reaching out to a licensed insolvency trustee. “They are legally and ethically bound to provide accurate, unbiased debt advice and they are subject to reviews and audits to ensure adherence to standards of practice,” Laflamme-Savoie writes.
Many of them will provide a free initial assessment, but you can expect to pay for their services if you go forward from there. They can evaluate your situation and make recommendations, as well as help with a consumer proposal or a bankruptcy. These options may be right for you if your debt isn’t going to be possible to tackle with a less extreme option. The FCAC has a tool to help you find an active licensed insolvency trustee.
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If that’s the situation you find yourself in, remember that you’re not alone. Lots of people go through bankruptcy, including more than 8,000 individual Ontarians between February 2023 and February 2024.
Both bankruptcy and consumer proposals have a bigger impact on your credit profile than a debt-management plan, says Arbour. But, she adds, “they are definitely viable options in the right circumstances to provide relief for folks when it’s just too much.”
Whatever path you end up taking, working to tackle your debts is going to cost less — and be less stressful — than ignoring them or continuing to juggle them every month. While you’re at it, don’t beat yourself up: “Stuff happens,” says Arbour.
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