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Debt can come from a variety of sources, mortgages, car loans, and credit cards just to name a few. Regardless of where your debt comes from, it’s an immense burden to carry around. While paying it down is very freeing, sadly can take quite some time. To manage your debt, you’ll need to come up with a realistic sustainable plan. You may be scratching your head as to what this is exactly, but fear not! 

This article will teach you how to get your finances on track to manage and eliminate your debt.

How To Manage Your Debt In Canada

Managing debt can be stressful without the proper tools or knowledge to pay it down. If you’ve racked up a lot of debt and are looking for ways to help manage your debt, here are some tools and resources to help you: 

Learn How To Budget: Free Budget Apps

In general, the more unorganized and scattered your debt is, the more challenging it is to manage. Of course, keeping your debt organized is often easier said than done.

To organize and manage your debt effectively, it helps to create a system or plan that works with your lifestyle. Thankfully, there are many free budget apps in Canada to help you with that. You can create a realistic spending plan by budgeting and understanding where you’re overspending. Those costs that you overspend on can be cut out easily and put towards paying down your debt.

YNABLearn More
MyDohLearn More
WallyLearn More
KOHOLearn More

Set Up Payment Reminders

Once you know what you need to pay every month toward your debt, set up payment reminders for yourself so you never miss a payment. It is also wise to include your paycheques in your reminders so you can optimize your cash flow. Missing payments can negatively affect your credit score, so try your best not to forget payments.

Monitor Your Credit Score With Free Credit Score Providers

It’s generally recommended that all consumers stay tuned into the activity on their credit report as this can help you identify fraud and ensure all your credit accounts are in good standing. That being said, you should try not to get obsessed with your credit score and report. Having good credit is important but, more often than not, paying down debt is even more important. 

 CostCredit ScoreCredit Report 
CompareHub logoFreeYesYesVisit Site
Borrowell logoFreeYesYesVisit Site
CreditKarma logoFreeYesYes-

Use Points To Pay Down And Manage Debt

One key way to cut down on debt is to curb your spending. But you still have to make purchases every so often. That said, you can help pay down part of your expenses by using points and loyalty programs.

For instance, if you frequently shop at a specific retailer, make sure you sign up for a loyalty card (if they have one) that you scan with every purchase you make. Eventually, you’ll have enough points to cover a future transaction.

Or, consider using a rewards credit card to make payments. That way, you can accumulate points or cash back rewards with every transaction. Once you rack up enough points, you can use those points to put toward paying your credit card bill for one month, or put those points toward various expenses. 

There are also third-party services that help you earn cash back on items you purchase every day by connecting you to hundreds of retailers. 

Even better, you could combine all three strategies and tools to maximize your savings to help whittle down your debt. Here are a few services to consider to help take your dollar further with every expenditure you make:

RakutenEarn cash back from hundreds of retailers.
Get discounts on various items.
Earn cash back referral bonuses.
Get paid via cheque or PayPal.
DropEarn points by shopping through the app.
Earn points for referrals.
Redeem points into gift cards.
AmpliLink your bank account to Ampli.
Earn cash back with participating merchants.
Redeem your points via Interac e-Transfer.
KOHOPre-paid credit card.
Earn 1% – 5% cash back on various purchases.
No annual fee.
Link your paycheque directly to your account.

Reduce Costs So You Have More Income To Pay Down Debts

There are several savvy ways to cut costs and put more of your income toward paying down your debt:

  • Use Coupons – You don’t have to clip coupons out of a newspaper or flyer. Instead, you can download a coupon app to help you optimize your savings. Flipp, Rebee, and Honey are just a few to consider, but there are plenty more. 
  • Price Match – Keep your eyes peeled on how much the same items cost at different merchants. Most retailers will match the prices of their competitors when consumers show proof that the same item is selling for a lower price elsewhere. 
  • Take Advantage of Discounts – Retailers often offer discounts to consumers within specific demographic groups, like seniors or students. These discounts can be significant and help you shave quite a bit off your total bill when you shop. All you need to do is show proof that you fit the demographic, and the retailer will honour the discount.
  • Get Freebies – Believe it or not, but there are so many ways to get free stuff. One way to snag a free item is to sign up with various retailers and restaurants to take advantage of perks on your birthday. When your big day rolls around, you can hop from one retailer to the next to claim your free gift. There are even ways to get free baby products and samples, and even free furniture if you know where to look! 
  • Use Free Tax Services – Everyone needs to file their income taxes, but using the services of a tax specialist can be expensive. To cut down on this cost, you can use any one of the many free tax filing software products, like TurboTax (the free version) and UFile, which are great even if you’re a beginner when it comes to filing taxes.

How To Manage Your Debt Using Debt Management Strategies

There are many strategies available to help manage your debt. Depending on how much debt you have and the type of debt you have, one method may prove more useful than the other. 

Snowball Method

The snowball strategy involves listing all of your debts from smallest to largest. Once you’ve listed them out, you start by paying off the smallest debt first and work your way down the list to the largest debt. 

The goal is to put as much money as possible toward a singular debt while still making minimum payments on your other outstanding debts. As soon as you’re done paying down one debt, you put all the money from that debt into the next. The term “snowball” comes from the fact that the amount of money you put towards each debt becomes bigger as you pay down each debt.

Avalanche Method

The avalanche strategy is similar to the snowball strategy in the sense that you also take inventory of all your debts. However, with the avalanche strategy, you order your debts from the highest interest rate to the lowest interest rate. Then, you start paying off the debt with the highest interest rate first and work your way down. The advantage of this method is that you’re paying off your most expensive debt first.

Mathematically speaking, the avalanche method is superior to the snowball method. In the long run, you’ll save more money because you’re not accruing expensive interest for as long. 

Balance Transfer

Many credit cards offer low- or zero-interest promotional periods. When you transfer your balance from another card, you can take advantage of this low-rate period to pay down your debt. These introductory periods typically last anywhere from 6 to 12 months.

This is particularly helpful if you’re currently paying very high interest on an existing credit card balance. As long as you pay off this high-rate balance within the promotional period on your balance transfer card, you could save a ton of money in interest.

Debt Consolidation

A debt consolidation loan involves paying all your debts with a single loan. That way, you only have to be concerned with one payment as opposed to many. However, a debt consolidation loan is mainly beneficial if you can secure a low-interest rate or one that is lower than the debts you’re consolidating. 

That being said, it can be challenging for an individual to get more credit if they’re struggling financially already. A debt consolidation loan is a good idea if you can snag a decent interest rate, get approved for the loan and afford the monthly payment with ease.

Use Your Home Equity To Consolidate Debt

If you’re a homeowner and can’t qualify for a low-interest debt consolidation loan due to poor credit or low income, consider tapping into your home equity using Alpine Credits. 

As long as you have enough equity in your home, you can qualify with Alpine Credits, your credit score and income don’t matter. 

A HELOC is a great option for consolidating your high-interest debt since it often has low-interest rates and is easier to qualify for since it is secured against your home. Plus, you can take advantage of higher loan amounts at affordable rates to keep your loan expenses down. By securing a lower interest rate, you can save money in interest by paying off all your higher-rate credit products, like credit cards or unsecured personal loans. 

Credit Counselling

If your debts are too out of control and can’t be managed with the methods above, then you should speak to a credit counsellor. They can consolidate your debt and sometimes stop or reduce your interest and fee charges through a debt management program (DMP). They will negotiate with your creditors on your behalf to come to an agreement. Once made, you’ll make monthly payments to your counsellor who will then distribute the payments to each creditor. 

Do note, that while a DMP is a great way to manage high debt, it will be noted in your credit report which will stay for 2 years after you’re done with the program. 

Bottom Line

If you’ve tried to manage your debt on your own but you’re still struggling, you may benefit from professional help. Whether you choose a credit counsellor or even a Licensed Insolvency Trustee, an expert can help you create a plan and ultimately get back on track. 

Debt Management FAQs

What is the best way to manage debt?

There’s no one way to manage debt. However, there are a few key habits to adopt to manage your debt better. This includes creating a budget, tracking your spending, paying your bills on time and limiting the number of loans and credit cards you take out. 

Does debt affect your credit score?

Yes, debt can affect your credit scores in both a positive and negative manner. Taking on new debts, paying your debts, and accumulating debt, can all impact your credit score. This is because debt is directly related to the various factors used to calculate your credit scores, such as payment history, debt-to-credit, and credit history. 

What is a debt consolidation loan?

A debt consolidation loan can be used to pay off all your existing loans. Ideally, your debt consolidation loan’s interest rate will be lower than the rates you’re currently paying on your existing credit accounts, which will save you money in interest payments. Further, converting your current debts into one loan payment will simplify your finances. 

Is all debt bad?

Some debt can be good, as long as you manage it responsibly. You can use debt to improve your credit score with timely bill payments or build wealth through wise investments. Debts used to buy a home or pay for education is also considered good debt because it’s considered an investment that will increase in value.

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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