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If there is one issue that most Canadians deal with at least once in their lives, it’s debt. It can be difficult for you to keep your head above the crest of an ever-rising tide of bills, credit card payments, mortgage payments, and consumer loans, but it doesn’t have to be that way.  Regardless of how you got into debt, with a little work and changes to your spending habits, it’s possible for, or anyone, to become debt-free.

What is High-Interest Consumer Debt?

Consumer debt is defined as a debt resulting from the purchase of goods that are consumable but do not appreciate in value, clothing, and food are two examples. More often than not, consumer debt is high in interest which is where the term high-interest consumer debt comes from. Usually, people tend to rack up consumer debt through credit cards, payday loans, or other forms of high-interest lending used for consumption purposes, as opposed to investment or business purposes.

Generally, high-interest consumer debt is a result of an emergency, unexpected expenses, or bad spending habits. Unfortunately, we cannot always control what happens in our lives, an illness or loss of a job can cause someone to accumulate consumer debt. In other cases, high-interest consumer debt is the result of poor spending habits due to a lack of personal finance knowledge.

Tackling Consumer Debt on Your Own

If you have high-interest consumer debt, there are ways to alter and improve your spending habits to pay down your debt and to prevent debt from building up again in the future. Here are our top tips for improving your spending habits.

Track Your Spending

It’s hard to get where you want to go if you don’t know where you’re at. That is why the first thing you need to do is start keeping track of how and where you spend your money. Those expensive coffees you treat yourself to every morning on the way to work may seem like a small expense, but figure out what they cost you over the course of a month and you might be surprised. Start by keeping track of all the things you buy in one day, this is a great way to ease into creating a budget for yourself.

Want, Need, Have to Have – Budget

Once you know where all your money is going, divide all your expenses up into those three categories and then be brutally honest with yourself. You definitely have to eat, but do you have to have lunch out every day? Packing a lunch every day may not be as much fun as going out to lunch with your coworkers, but neither is being afraid to answer your phone because you’re afraid it is a creditor calling.

Budgeting can be a pain, especially when you have to cut out unnecessary, but often fun or entertaining expenses that you’ll surely miss. But, a budget is a plan for your finances and future. Eliminate your wants and take a second look at your needs to see if you can find cheaper alternatives. Remember this is just temporary and will be more than made up for when you are finally debt-free.

Learn how to Create a Budget to Reduce Credit Card Debt here. 

Downgrade Your Car

Aside from mortgages, car loans are one of the biggest sources of debt. People tend to purchase cars that are outside of their price range and end up paying hundreds of dollars every month. By downgrading your car, not only will you reduce expensive monthly payments, you can potentially get some money back to help pay down your debt.

Eliminate the Negative

Next look at all of the little charges that add up in your budget, try to minimize your banking fees by only using your bank’s ATM. Get a copy of the list of fees associated with your account and see if you can save by paying bills online or if you can save by changing the type of account that you have.

Contact your creditors, don’t hide from them. Be honest with them and explain why you are having trouble making your payments. The majority of the time they will be willing to work with you and modify your payment plan as long as you make an honest effort to pay.

Protect your credit cards by using Google Pay.

Pay More Than Minimum Payments

Making a minimum payment may seem like you’re bettering your debt situation, but in reality, your interest charges are accumulating faster than you can pay your debt. The larger the payments you make, the quicker you’ll reduce what you owe and how much interest you’re accumulating. Keep in mind that you still need to be financially smart and save some money for an emergency.

Do you know about the minimum payment trap? Learn here.

Seeking Professional Help to Pay Down Debt

If you are struggling to manage your finances and debt on your own, there are a number of products and services available to assist you. Before seeking professional help, be sure to consider the intensity of your financial situation because each product and service caters to different levels of debt.

Debt Consolidation Loans

If you are in a situation where you owe money to various sources, consider a debt consolidation loan. A debt consolidation loan will combine all your unsecured debt into one large loan by paying off your existing debt with the new money. By consolidating your debt into one loan, you will only be managing one balance which is much less stressful.

Often, debt consolidation loans come with lower interest rates which is a bonus. Interest rates can be reduced further if you use collateral to secure the loan, such as your house. It is important to remember that by using your assets as collateral for the loan, you are risking the asset being seized.

It will be necessary to continue to control your spending habits with a consolidated loan. The loan does not better your financial situation on its own, it just makes it easier for you to manage.

Debt Consolidation Programs

Similarly to debt consolidation loans, debt consolidation programs combine your unsecured debt into one easy to manage monthly payment. Credit card debt, payday loans, overdue bills, and unsecured lines of credit are all examples of unsecured debt.

Once you have enrolled in a debt consolidation program, you will work with a counsellor to create a plan of action. With your counsellor, you will come up with a reasonable monthly budget and a complete schedule for how you will repay your creditors. Each month you will send money to your counsellor and they will pay creditors on your behalf.

These programs are ideal for people who don’t have ample secured debt and are seeking confidential support for their unsecured debt. This service reduces harassment and stress from creditors as well as avoiding liquidation of your assets. You are still required to manage your spending habits with these programs and there are often associated service fees.

Debt Settlement

When you choose debt settlement you will work with a debt settlor who will collect monthly payments from you. Once the debt settlor has collected enough money, they will contact your creditors to negotiate a lower, but immediate, payment of your debt. The idea is that creditors want to get some form of payment now instead of nothing or having to wait.

For a more detailed look at debt settlement, check out this article.

Typically, the debt settlor will take a flat fee or percentage of the debt as payment for their services. Debt settlement can be risky because you cease paying the creditors directly for a period of time until the negotiations start. If you are only a few months behind on payments, debt settlement can negatively impact your credit score since you’re stopping payment entirely.

On the other hand, if you are already way past being a couple of months behind on payments or your accounts have been sent to collections, debt settlement may work for you.

Consumer Proposal

If your debt has reached a point where it is basically impossible to deal with and you’re facing legal consequences, a consumer proposal could be the solution you’ve been looking for. That being said, a consumer proposal is an extreme option that will have long-lasting effects on your credit score. Be sure to seriously consider if this option is right for you before moving forward.

Learn what happens to your debt with a consumer proposal. Click here.  

With a consumer proposal, you’ll be working with a Licensed Insolvency Trustee who is an Officer of the Court and will create a legally binding repayment of debt proposal between you, the consumer, and your lenders. If your consumer proposal is accepted, you will be eligible for a reduced balance and interest rate, in addition to a “stay of proceedings” which means that lenders are required to stop contacting you to collect.


If you are in a situation where your debt is completely unmanageable, your only choice may be to file for bankruptcy. Bankruptcy is the legal term for when an individual or business cannot repay their outstanding debts. It is important to note that filing for bankruptcy should be a last resort as it is a drastic choice that has adverse, long-term effects on your credit.

As with a consumer proposal, you will be working with a Licensed Insolvency Trustee who will create an agreement freeing you from debt including a stay of proceedings. Creditors are notified when an individual owing them money is in the process of declaring bankruptcy to give them an opportunity to make a final claim.

The Road to Becoming Debt Free

It can seem like a daunting task to get out of debt, but it can be done and in the process, you will develop healthy spending habits that will serve you a lifetime. Best of all is the feeling of accomplishment you will feel as you see your debt get smaller and smaller and the freedom you will enjoy living a life free of financial strain. If you’re interested in seeking professional help for your debt repayment issues, Loans Canada can match you with the right service provider for your needs. 

Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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