Carrying debt is common, and it doesn't mean you've done anything wrong. What matters most is having a plan, because debt with a plan feels very different from debt without one, even if the balance is the same.
Step 1: List everything you owe
Write down every debt: the balance, the interest rate, and the minimum payment. Include credit cards, lines of credit, car loans, student loans, and any "buy now, pay later" balances. You can't prioritize what you haven't listed.
Step 2: Choose a payoff strategy
Two common approaches, both valid:
- Avalanche method: Pay minimums on everything, then put every extra dollar toward the debt with the highest interest rate. This saves the most money in interest over time.
- Snowball method: Pay minimums on everything, then put every extra dollar toward the smallest balance first. This builds momentum through quick wins, which helps many people stay motivated.
When one debt is paid off, roll its payment into the next one on your list. The "best" method is the one you'll actually stick with. If interest rates are similar, momentum usually wins.
Step 3: Match your urgency to the interest rate
High-interest debt (most credit cards charge around 20% or more, and many lines of credit are well above mortgage rates) actively works against you and deserves urgency. Lower-interest debt (some student loans, mortgages) can often be paid down on a steadier schedule while you also build an emergency fund and save for the future.
If you're feeling overwhelmed
A non-profit credit counsellor can help you build a structured repayment plan, sometimes through a debt management plan that negotiates reduced interest with your creditors. This is different from a for-profit debt settlement company: non-profit credit counselling is generally free or low-cost. For larger debts, a Licensed Insolvency Trustee can explain formal options such as a consumer proposal.
Common traps to avoid
- Only paying the minimum on high-interest cards, which can take many years to clear
- Closing old credit accounts as soon as they're paid off, which can affect your credit utilization and history length (see credit scores in Canada, explained)
- Taking on new debt to "consolidate" without addressing the spending pattern that created the balance
Whatever strategy you choose, automate at least the minimum payments so a missed due date never adds unnecessary interest or fees on top of what you already owe.
Frequently asked questions
Is the debt avalanche or debt snowball method better?
The avalanche method, which targets the highest interest rate first, saves the most money mathematically. The snowball method, which targets the smallest balance first, often works better for people who need quick wins to stay motivated. The best method is the one you will stick with.
Should I pay off debt or save first?
Many people do both: build a small emergency fund so surprise costs don't go on a credit card, pay off high-interest debt aggressively, and keep capturing any employer savings match. Lower-interest debt can usually be paid on schedule while you save.
What is the difference between credit counselling and debt settlement?
Non-profit credit counselling agencies help you budget and may arrange a debt management plan with reduced interest, usually for free or a low fee. For-profit debt settlement companies charge fees to negotiate with creditors and are not the same as a Licensed Insolvency Trustee, who is federally regulated in Canada.