Debt is not a moral failing. It's a financial situation — one that millions of Canadians are in. Sometimes it comes from choices, sometimes from circumstances nobody could have predicted. Either way, the path forward is the same: understand what you owe, make a plan, and start moving.
Know what you're dealing with
The first step is writing it all down. Every debt, every balance, every interest rate, every minimum payment. This can feel uncomfortable, but you can't navigate without a map.
For each debt, note:
- Who you owe (creditor name)
- Total balance owing
- Interest rate
- Minimum monthly payment
- Whether it's in collections or current
Once it's all on paper, add up the total. That number might be scary. That's okay. Knowing it is better than not knowing it.
Two methods that work
There are two proven approaches to paying off multiple debts. Neither is wrong — pick the one that fits how your brain works.
The avalanche method (saves the most money)
Pay minimums on everything, then throw every extra dollar at the debt with the highest interest rate. When that one's gone, move to the next highest.
This saves you the most in interest over time. It's mathematically optimal. But if your highest-rate debt is also your biggest, it can feel like you're not making progress for a long time.
The snowball method (builds momentum)
Pay minimums on everything, then throw every extra dollar at the smallest balance. When that one's gone, move to the next smallest.
You'll pay more in interest overall, but you get wins faster. Crossing a debt off the list feels good and keeps you going. For a lot of people, that motivation is worth more than the math.
Say you have three debts and $400/month total to put toward them:
Credit card: $3,000 at 19.99%, minimum $75
Car loan: $8,000 at 6.9%, minimum $200
Personal loan: $1,200 at 12%, minimum $50
Avalanche: Pay minimums on the car loan ($200) and personal loan ($50), put remaining $150 on the credit card (highest rate). Credit card paid off in about 18 months, then redirect to the personal loan.
Snowball: Pay minimums on the credit card ($75) and car loan ($200), put remaining $125 on the personal loan (smallest balance). Personal loan paid off in about 8 months, giving you a quick win and freeing up $175/month to throw at the next target.
Both work. The avalanche saves roughly $400 more in interest. The snowball gets you your first win six months sooner.
Negotiating with creditors
Most people don't realize this: creditors would rather get some money than no money. If you're struggling, you have more leverage than you think.
- Call and ask for a lower interest rate — especially on credit cards. The worst they can say is no. If you've been a customer for a while and have been making payments, you have a decent shot
- Request a hardship program — most major banks have programs that temporarily reduce your interest rate or minimum payment during financial difficulty
- Negotiate a lump-sum settlement — if a debt is in collections, the collection agency often bought it for cents on the dollar. They may accept 30-50% of the balance as payment in full. Get any agreement in writing before you pay
If a creditor or collection agency agrees to a settlement, reduced payment, or any change to your terms, get written confirmation before sending money. Verbal agreements are hard to enforce if they later claim you still owe the full amount.
The payday loan trap
Payday loans are designed to keep you borrowing. A typical payday loan charges $15 per $100 borrowed for two weeks. That sounds manageable until you do the math: $15 on $100 for two weeks is equivalent to almost 400% annual interest.
The cycle works like this: you borrow $300 to cover a shortfall. Two weeks later you owe $345. But you still have the same shortfall, so you borrow again. Each cycle costs you more.
If you're currently in a payday loan cycle, the goal is to replace it with anything cheaper. A credit union personal loan at 12% is expensive — but it's a fraction of 400%. Some credit unions specifically offer "payday loan alternatives" for this reason. Your band office may also have emergency assistance programs that can bridge the gap.
When it's too much: consumer proposals and bankruptcy
These are not failures. They are legal protections designed to give people a fresh start. If your debt is unmanageable, these options exist for a reason.
Consumer proposal
A Licensed Insolvency Trustee (LIT) negotiates with your creditors on your behalf. You agree to pay a portion of what you owe over up to five years. Creditors typically accept because they get more than they would in a bankruptcy.
- You keep your assets (home, car, RRSP)
- Interest stops immediately
- Collection calls and wage garnishments stop
- Stays on your credit report for 3 years after completion
- You typically pay 20-50% of what you owe
Bankruptcy
A more significant step, but sometimes the right one. A bankruptcy discharges most of your debts entirely. You may need to give up some assets (varies by province), and it stays on your credit report for 6-7 years after discharge. But after that, you're genuinely starting fresh.
Consumer proposal makes sense when: You have some income and can afford reduced payments. You want to keep your assets. Your total debt (excluding mortgage) is under $250,000.
Bankruptcy makes sense when: Your debt is overwhelming relative to your income. A consumer proposal payment would still be unmanageable. You need a complete reset.
The first consultation with a Licensed Insolvency Trustee is free. They're legally required to explain all your options, not just push you toward bankruptcy. You can find one through the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) website.
Collection agencies — know your rights
If a debt goes to collections, the calls can feel intimidating. But collection agencies have rules they must follow. Knowing your rights changes the dynamic.
- They cannot call you at unreasonable hours — rules vary by province, but generally no calls before 7 AM or after 9 PM
- They cannot threaten you — no threats of arrest, violence, or public embarrassment. If they do, report them to your provincial consumer affairs office
- They cannot contact your employer — except to verify employment, and they cannot reveal the debt
- You can request they communicate in writing only — send a written request and they must comply
- You can dispute the debt — ask them to verify the amount and provide documentation. If they can't, they can't collect
- There is a limitation period — in most provinces, after 2-6 years of no payment or acknowledgement, the debt becomes unenforceable in court (though it may still appear on your credit report)
If a collector calls about a very old debt, be careful. Acknowledging the debt or making even a small payment can restart the limitation period. Before saying anything, find out when the debt originated and what your province's limitation period is.
Moving forward
- Write down every debt — balance, rate, minimum payment
- Pick your method — avalanche or snowball, whichever you'll stick with
- Automate minimums — so nothing goes late while you focus on your target debt
- Call your creditors — ask about hardship programs or rate reductions
- If it's overwhelming — book a free consultation with a Licensed Insolvency Trustee. No judgement, just options
Getting out of debt isn't fast, but it's possible. Every payment moves you forward. The fact that you're reading this means you're already taking it seriously.
Last updated: March 2026