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What you’re doing wrong that keeps you in debt
Don't turn a blind eye. Here's how to get out of debt once and for all.
Updated

Many people view debt as a negative thing, but debt can often start out as something positive. Debt can help you get the things you want and need faster and can help you live a lifestyle you might not have previously been able to. As long as you can retain control of and stay on top of your debts, things can remain hunky-dory. It’s once this control is lost that debt can become a problem.
The reality of Canada’s household debt
In mid 2019, the Bank of Canada reported that the average Canadian has a household debt of 174% of disposable income. In simple terms, this means that the average Canadian owes around $1.74 for every $1 of income they earn annually after taxes.
Debt ranges from credit card debt to car loans, mortgages, personal loans, student loans and short-term loans.
Why do people struggle with debt?
A look at the numbers reveals that debt is a part of the majority of Canadian households, especially when it comes to mortgage loans. While some of us continue to struggle with debt, others manage their debts with complete assurance. A different approach and a different mindset make a big difference when it comes to dealing with debt responsibly. How do you deal with your debt? People who struggle with debt:
- Do not monitor their income and expenses. This may be due to not knowing how to budget properly, or not sticking to their budget.
- Have expenses that typically exceed their income.
- Are experiencing financial distress brought on by conditions such as a reduced income, being unemployed, etc.
- Engage in certain wasteful habits such as shopping for things they don’t need.
- Lack proper money management skills.
- Have little or no savings for dealing with unforeseen expenses such as emergencies or loss of income.
- Don’t compare products or review their financial products to see if they could save.
- Remain in denial and refuse to acknowledge that they have a debt-related problem on their hands.
- Fail to pinpoint the real reasons that got them into debt in the first place.
- Make only the minimum payments towards their debts.
Debt consolidation loans
A lender is asking for money upfront before giving me a loan. Should I pay it?
No, a legitimate lender should not ask you to pay any funds upfront. In many provinces, it is actually illegal for a lender to request any money upfront. If a lender charges an origination or processing fee for a loan, they will typically deduct it from the loan amount. If a lender is asking for a prepaid card loaded with funds or for you to pay loan insurance, you should look elsewhere for a loan – it’s likely a scam. You should also be aware that loan insurance is never required.
What debt consolidation methods are available?
If you’re struggling with your debt, there are strategies you can consider to reduce it. The most important step is to find the debt consolidation method that is going to work best for your needs and the type of debt you have.
- Debt consolidation loans. If you’re juggling multiple repayments, you could consider consolidating them into a single loan. This can help reduce the amount you’re paying in interest, as well as fees on separate accounts. A debt consolidation loan can come in the form of an unsecured personal loan, or by you accessing equity you have available in your property. Keep in mind you’ll need to have good credit to qualify.
- Balance transfer credit cards. If you have credit card debt across multiple accounts, you can consolidate it into a single card with a balance transfer offer. You will pay either 0% or low interest for a specific period of time (usually six to 10 months). Some credit card providers also let you balance transfer personal loan debt. For this method, you will also need good credit to be approved.
- Consumer proposal. If you’re having trouble repaying your debt, you could enter into a legally binding contract that’s drawn up by a Licensed Insolvency Trustee (LIT). The LIT work alongside you to draw up an agreement that essentially offers to pay your creditors a certain percentage of the money you actually owe, and/or attempts to extend the time that you have to pay back your debts. Some creditors agree to accept less than the full balance for repaying your debt, but entering into this type of debt agreement shouldn’t be taken lightly as it is considered a form of bankruptcy and will damage your credit report.
- Credit counselling. Enlist the services of a reputable credit counselling organization who can help you formulate a debt management plan. These services can contact your creditors and attempt to get an extended period of time to pay off your debt, and/or attempt to negotiate lower interest rates. They will also assist in consolidating your debts, which means you can focus on paying off one debt, as opposed to multiple. A credit counselling organization will usually handle the repayment to your creditors, however this all comes at a cost. While a credit counselling organization can be a helpful way to get your debt under wraps, it isn’t a decision that should be taken lightly. This should only be entered into if you’re having difficulty repaying your debts on your own, as the help doesn’t come cheap.
Compare balance transfer credit cards
Staying out of debt
When it comes to staying out of debt, there are quite a few things you can do. You could look at developing an emergency fund by trying to save up to 15% of your income. If you find this number a bit high, or just want a way to ease the financial strain, you could consider ways to create alternate sources of income. There are a huge amount of ways to make money online with freelance work by charging people for your skills. You could also consider selling some of your unused items, or looking at your expenses and seeing ways you could cut back. As always, creating a budget and sticking to it is a surefire way to keep you on track.
Debt reduction strategies you can consider
If you’re considering tackling your debt head-on without taking out another type of credit, there are ways to help you take back control of your finances:
- The “snowball” or “domino” method. This involves you writing down your total outstanding debt on each of your credit accounts, except for your mortgage. You don’t need to consider interest rates at this point. Whichever account has the smallest balance is the account you make additional payments into and you pay off first – then the next smallest balance, then the next smallest, and so on until you’re out of debt. This method helps get more accounts closed quickly, saving you interest and fees and gets you motivated by paying off debt. If two accounts have similar rates, pay off the higher interest rate account first. Remember to keep paying the minimum balance on all accounts and to consider early repayment fees for your personal loans.
- Pay off your highest balances first. Another strategy is to pay your highest interest balances first. Paying off these accounts will save you money on interest repayments and have the same benefit as the “snowball” strategy in that it will help get your accounts closed. Start by writing down all your accounts, the balance outstanding on each and the interest rate. Remember to consider the balance of credit accounts when starting to pay them down and to keep making minimum repayments on all accounts.
- Lose your loyalties. Finding the money to make additional payments can be a struggle. When was the last time you compared your savings accounts? Before making a purchase, have you looked to see if you could find it cheaper with a coupon code? Saving where you can and putting all your additional funds into your prioritized debt (according to the strategy you’ve adopted) is key to being debt-free.
- Budget, budget, budget. Developing and sticking to a budget is of paramount importance when it comes to getting out of debt. There are a wide amount of budgeting websites and tools available that can help you track your spending, saving and expenses, so compare your options to see which one works for you.
If you’re stuck in a debt rut, picturing yourself finally getting out of it can be difficult. However, it is possible. With the right tools and the right strategy under your belt, you can be debt-free sooner than you think.
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