Making a plan to manage your debt (2024)

Making a plan to manage your debts will help you achieve your financial goals. Follow these tips to reduce your debts.

Make a list of your debts

Start by identifying what you owe. Make a list of all your debts.

For each one, note:

the total amount you owe
the minimum monthly payment
the interest rate

Your list may include:

mortgages
car loans
credit cards
lines of credit
personal loans
student loans
payday loans
taxes you owe
buy now, pay later plans
unpaid utility bills (cell phone, electricity television, etc.)
loans from friends and family
spousal support and/or child support you owe
any other unpaid bill (property taxes, store financing, etc.)

Use the Financial Goal Calculator to manage your debts and set savings goals.

Review your budget

A budget is a plan that helps you manage your money.

It can help you:

figure out how much money you get, spend and save
balance your income with your expenses
guide your spending to help you reach your financial goals

Reviewing your budget can help you repay your debt faster. When reviewing it, put needs before wants and try reducing your expenses. You’ll be able to cut some expenses that are not necessary. This way, you’ll have more money available to repay your debts.

Use the Budget Planner to manage your money and improve your finances.

File your taxes

File your taxes each year to get the benefits and credits you may be eligible for. You may get money back to help repay your debt. Even if you have little to no income, you should still file your tax return.

Learn more about tax credits and benefits for individuals.

Use the Benefits Finder to find benefits that you may be eligible to receive.

You can also get help with your tax return if you have a modest income and a simple tax situation. Volunteers at a free tax clinic may be able to complete your tax return for you.

Decide on a strategy

Once you’ve created a list of all your current debts, start your plan to pay them off. The types of debt and the amount of debt you owe will influence your strategy for paying them off.

Choose a timeframe

Set a payment timeframe that is reasonable and affordable.

If your timeframe is too long, you may lose focus if there’s no progress in paying down your debts. You'll also end up paying more money in interest over time.

If your timeframe is too short, you may not be able to keep up with your payments. You may start to feel like it's unrealistic to continue.

Keep in mind, if interest rates rise, your monthly payments may increase.

Learn how to manage your money when interest rates rise.

Decide which debts to pay off first

Depending on the type of debts you owe, it may be best to pay off certain debts first.

Debts with high interest rates

By paying off the debts with the highest interest first, you'll pay less interest. This will help you be debt-free sooner.

List your debts in order, from the highest interest rate to the lowest. Make the minimum payments on all your debts. Then use any extra money to pay down the debt with the highest interest rate.

For example, payday loans often carry the highest interest rates of any debts you may owe, followed by credit cards.

Learn how payday loans work and what questions to ask a payday lender.

Debts with the lowest balance

You may find it easier to start with your debt with the lowest balance. You'll feel the accomplishment of paying off a debt sooner. This can keep you motivated to maintain your goal to become debt-free. However, this option may cost you more over time. For example, if you have one or multiple debts with high interest rates.

Make a plan to pay back your family or friends

If you have a personal loan with family or friends, talk to them about the money you owe. Commit to a payment schedule that works for you and the person who lent you money.

Consider writing post-dated cheques or setting up automatic money transfers to stick to the payment plan. This will show that you're committed to repaying them.

Work directly with your creditors and your financial institution

Contact your creditors to discuss your financial situation with them. Your creditors are the companies you owe money to.

They may offer you:

a lower interest rate on your debt
to extend your payments over a longer period to reduce your minimum monthly payment
to consolidate your debts into one loan

Close accounts on debts you’ve paid off

Once a debt is paid, consider closing that account. Only keep what you need and can manage responsibly. However, you should keep an older account open. Your credit score is based in part on how long you’ve had credit, also known as your credit history. Keeping an older credit account open helps maintain a long-term credit history.

Learn more about how your credit score is calculated.

Consider a secured credit card

You may also want to consider using a secured credit card instead of a regular credit card. It requires you to leave a deposit with the credit card issuer as a guarantee and you can only spend to that limit.

Learn how to use and apply for a secured credit card.

Consolidate your debts

You may want to consider applying for a loan to pay off multiple debts with high interest rates. This is called consolidating your debts.

Consolidating your debts means you’ll only have to make one monthly payment instead of paying each debt individually.

A consolidation loan may help you get out of debt if:

it has a lower interest rate than the debts you are consolidating
it has a lower monthly payment than all your other debts put together. This way you can put the extra money toward paying down your debt faster
you avoid taking on more debt while you are paying the loan

If you're considering a consolidation loan, ask your financial institution which debts you'll be able to group together.

Eligibility for a consolidation loan

Your financial institution may be able to provide you with a consolidation loan depending on your situation. To be eligible, you must have an acceptable credit score and enough income to make the monthly payments.

Shop around for a consolidation loan

Some companies offer consolidation loans with interest rates that are higher than the debts you are trying to consolidate. Shop around to find the lowest rate and weigh your options. Although it’s not the biggest factor, applying for loans with different lenders within a short period of time may lower your credit score.

Financial institutions may offer you different interest rates depending on the type of product you choose. Shopping around might help you find the best loan for your budget.

Learn more about getting a loan.

Avoid taking on more debt

If you spend more than your income, it will be difficult to become debt-free.

If you're considering borrowing more money, understand how it would impact:

your existing debt payments
your budget
your ability to save for other goals
your credit report and score

You're at risk of no longer being able to manage your debt if:

you're already having trouble making your debt payments
you're close to your credit limit
you would have trouble making higher payments if interest rates increased

Tips to avoid taking on more debt

Follow these tips to lower your chances of taking on more debt.

Know where to get help

If you’re trying to pay down debt and need help, don’t wait too long. Be proactive and seek help before experiencing challenges.

You can contact:

an accredited not-for-profit credit counsellor
a financial advisor
a Licensed Insolvency Trustee

With their help, you'll be able to:

evaluate your current debt situation
determine your current and future needs
make a budget
find ways to pay off the debt

Before you sign up for services to get help to pay off your debt, explore your options. Compare the different services offered.

Getting help from a credit counsellor.

Find a Licensed Insolvency Trustee near you.