As a Certified Financial Planner (CFP), I often hear the same questions from Canadians trying to get a handle on their finances: How did I accumulate this debt? What’s the best way to pay it off? Debt comes in many forms—car loans, credit card balances, lines of credit, personal loans and mortgages—and each requires a clear plan. Understanding your options and choosing the approach that fits your personality and situation is the first step toward becoming debt-free.
Consumer debt in Canada has grown substantially in recent years. According to Equifax Canada, total consumer debt reached $2.54 trillion in the third quarter of 2024, a rise from the prior year. Non-mortgage debt has also increased, and the average consumer balance climbed as well. Many households are feeling the strain: surveys indicate a significant portion of Canadians report their incomes are not covering essential expenses, which has led to greater reliance on credit and support from family to make ends meet.
When deciding how to tackle debt, it helps to consider both the numbers and your own emotional drivers. Some people are motivated by small wins and momentum, while others focus on minimizing the total interest they pay. Below are four practical strategies to consider, along with the advantages and trade-offs of each approach.
The debt snowball method
If small victories keep you motivated, the debt snowball method could work well. With this strategy you make the minimum payments on all debts, then apply any extra money to the account with the smallest balance—regardless of interest rate. Paying off smaller balances quickly produces visible progress and can build momentum. For example, if you clear a $3,500 personal loan first, you’ll free up the monthly payment you were making on that loan and can apply it to the next smallest balance. The snowball approach is effective if psychology and motivation help you stay disciplined.
The debt avalanche method
If saving on interest is your priority, consider the debt avalanche method. Here you continue to make minimum payments on all accounts but put any extra funds toward the debt with the highest interest rate. This reduces the total interest you pay over time and typically shortens the payoff timeline. In practice, this method often targets high-rate credit card debt first, then moves on to lower-rate loans as each balance is eliminated. The avalanche is mathematically optimal for minimizing cost, but it may require more patience if larger balances take longer to clear.
Both the snowball and avalanche approaches have strengths: the avalanche saves more in interest, while the snowball provides faster psychological wins. Whichever you choose, set clear timeline goals and keep paying minimums on all debts to protect your credit score and avoid late fees or cancellations.
Balance transfer to a lower-interest credit card
Another option—if you qualify—is a balance transfer to a lower-interest or promotional zero-percent card. Moving high-rate credit card balances to a card with a lower introductory rate can reduce how much interest accrues, allowing more of your payment to go toward principal. Many promotional rates are limited to a 6- or 12-month period, after which the rate reverts to the standard APR, so review the terms carefully.
This strategy can be powerful for accelerating repayment, but it requires discipline: avoid creating new charges on your old cards, and aim to repay as much of the transferred balance as possible during the promotional window. Consolidating multiple smaller balances into a single monthly payment can simplify your finances, but make sure you understand any transfer fees and the duration of the low-rate offer.
Debt consolidation loans
A debt consolidation loan provides a structured alternative that may suit those who prefer predictable payments. With a consolidation loan, you combine multiple debts into a single loan with a fixed interest rate, fixed monthly payments and a defined repayment period. This predictability can make budgeting easier and help you visualize a clear payoff date. Depending on the loan terms and your interest rate, consolidation can lower monthly payments or reduce the total interest paid over time.
Before choosing a consolidation loan, compare the interest rate, fees and repayment term to your current debts. Ensure that the new payment schedule aligns with your cash flow and that you remain committed to not adding new unsecured debt while you pay down the loan.
Regardless of which path you select, the end goal is the same: clear the balances, regain financial stability and redirect those payments into savings and long-term goals. Track your progress, celebrate milestones, and adjust your plan if your income or expenses change. With discipline and a clear strategy—whether that’s snowball, avalanche, balance transfer, or consolidation—you can reduce your debt burden and move toward a more secure financial future.
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More about debt management:
- The MoneySense guide to debt management: How to get out of debt
- How AI is helping Canadians budget, save, and tackle debt
- Managing debt to build wealth
- How to consolidate debt in Canada
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