Friday, August 13, 2021
Learn how to start getting out of debt in Canada with practical first steps for managing your finances, paying off debt faster, and building a path toward long-term financial stability.
Overcoming debt can feel like a daunting task, especially when you're not sure where to begin. Bills pile up, and the debt keeps growing with interest charges, but what to do about it is unclear. Figuring out the first step often feels like the hardest part, but it’s often not as complicated as it seems.
Starting to get out of debt doesn't require complicated strategies or financial expertise. You don't need to be perfect with money. What you need is a clear starting point and plan you can actually follow.
Whether you owe a few thousand dollars or tens of thousands, the starting principles remain the same. Here are the essential steps to take when you're ready to start getting out of debt.
It’s impossible to come up with a plan to pay off your debt if you don’t know exactly how much you owe.
Many people in large amounts of debt avoid looking at their bills because it feels overwhelming, but this avoidance only makes the situation worse.
Knowing your full financial picture helps you decide if you can manage the debt alone or need help.
Start by gathering all the financial statements for your debts: credit card bills, student loans, personal loans from the bank, car payments, and any other debts you're carrying.
Checking your online banking and credit card app will give you the most accurate numbers.
Create a simple list that includes the creditor's name, the total amount owed, the interest rate, and the minimum monthly payment for each debt.
Don't skip anything, not even small debts.
This process reveals important information you need. You'll discover:
You'll also easily be able to calculate your total debt amount.
Finding out your total debt can seem daunting at first, but it gives you a concrete number to work with.
Once you know how much you owe, you need to know how much money you have available to pay it off.
A realistic budget shows you where your money goes and how much you can put towards paying off your debt.
Look at your online banking app to see how much money you’re earning each month.
If you have any side gigs, include that money as well.
Then look at your monthly expenses and divide them into two categories: essential and non-essential.
Essential expenses include:
Non-essential expenses include:
Be honest about your spending. Many people discover they're spending significantly more on certain categories than they realized.
Once you have a clear picture, look for areas where you can cut back.
Even finding an extra $50 or $100 per month makes a difference when applied consistently to your debts.
A working budget also prevents you from taking on new debt.
Once you’ve built a budget, it’s time to find the best way to pay down your debts.
There are a few ways to approach debt repayment depending on your goals and motivation. Two of the most common strategies are the debt avalanche and debt snowball.
The avalanche method Focus on paying off the debt with the highest interest rate first while continuing to make minimum payments on all others. This method saves you the most money over time.
Here’s how do to it:
The debt avalanche saves you the most money in the long run because you’ll pay less in interest over time.
However, progress can feel slow at first, especially if your highest-interest debt also happens to be your biggest debt.
The debt snowball takes a different approach. Instead of focusing on interest rates, you focus on the smallest balance first.
Here’s how to do it:
This method is meant to work like a snowball rolling down a hill. You gain momentum and get some quick wins by removing your smallest debts.
This method often costs more over time, as it only looks at the balance of the debt, not the interest rate.
However, you don't have to use the snowball method all the way through your debt repayment.
If you have small debts you can pay off quickly, you can start with the snowball method, then switch to the avalanche.
Sometimes finding savings in your budget is all you need to get yourself out of debt, but there are times the tightest budget can't solve your debt problem.
You might cut every possible expense and still find yourself barely covering minimum payments while your balances remain high.
If you have multiple debts with different due dates, interest rates, and payment amounts that overwhelm your ability to make real progress, you need a different approach.
This is where debt consolidation can help.
Debt consolidation means taking out a new loan to pay off multiple existing debts.
This loan doesn’t add debt; it simply combines all your different debts into one payment each month.
You can apply for a debt consolidation loan through a bank.
Debt consolidation has two main advantages.
Advantage one: There’s only one monthly payment. Instead of having multiple debts with different payment dates, you only need to make one payment each month.
Advantage two: Debt consolidation loans typically come with lower interest rates than those of a credit card. This means more of your payment goes toward paying down your overall debt, helping you get out of it faster.
Debt consolidation requires you to have a good credit score in order to be approved by the bank. If that’s not the case for you then you’ll need to consider more serious options.
There’s no shame in asking for help when debt feels overwhelming. In fact, reaching out for professional support can be the smartest step toward becoming debt-free.
When you’ve tried budgeting, repaying the debt on your own, or even debt consolidation and still can’t make progress, it’s time to talk to a Licensed Insolvency Trustee.
A Licensed Insolvency Trustee is a federally regulated debt professional authorized by the Government of Canada.
They are the only professionals who can file legally binding debt solutions like consumer proposals and bankruptcies.
Their job is to review your entire financial situation and help you find the best path forward to become debt-free.
A consumer proposal is a formal agreement between you and your creditors to repay part of what you owe.
This can help you lower your payments on unsecured debts, such as credit cards, personal loans, and payday loans.
Your Licensed Insolvency Trustee will negotiate on your behalf to reduce your total debt and lower your monthly payments.
A consumer proposal can reduce the amount you owe by up to 80%.
The Licensed Insolvency Trustee handles all the necessary paperwork and guides you through the entire process.
Bankruptcy is a legal process that eliminates most types of unsecured debt, such as credit cards and personal loans.
It’s designed to give you a fresh financial start when no other solution will work. It’s reserved for only the direst cases.
Most people do not need to declare bankruptcy; consumer proposals are much more common in Canada.
During bankruptcy, your Licensed Insolvency Trustee deals directly with your creditors and ensures you meet all legal requirements.
Most first-time bankruptcies last between 9 and 21 months, depending on your income and circumstances.
You may have to surrender some assets, but you will not lose everything. Each province enforces strict bankruptcy rules, including a list of items that creditors can't take from you.
Our Licensed Insolvency Trustees understand that debt can happen to anyone. That’s why we offer free, confidential consultations.
Our Trustees can review your entire financial situation, answer your questions, and explain every possible debt relief option available to you.
They’re not there to judge and there’s no pressure or obligation to sign anything at the first meeting.
It’s a chance for you to see all your options to become debt-free and find out what works best for you.
Friday, August 13, 2021
Learn how to start getting out of debt in Canada with practical first steps for managing your finances, paying off debt faster, and building a path toward long-term financial stability.
