Best Ways to Pay Off Debt: A Guide for Canadians

Many Canadians aspire to buy a home or a car someday. When they reach these milestones, they often need to take on significant debt to afford a comfortable lifestyle. In fact, the average Canadian household debt (excluding mortgages) in the first quarter of 2025 was almost $22,000, according to a report by Equifax. 

With the high cost of living, carrying debt has become more common for many Canadians, especially when factoring in a mortgage. Even so, having a plan can make all the difference in navigating your financial situation. 

If you’re looking to find the best way to pay off debt, you’ve come to the right place. Here, we’ll explain the types of debt, outline proven repayment strategies, and explore how creditor solutions can protect your finances. 

Understanding debt

The first thing to understand about debt is that not all debt is  created equal. If you carry multiple loans, it’s important to understand the common types. In Canada, debt often includes mortgages, credit cards, personal loans, lines of credit, and student loans.  

Secured debt vs. unsecured debt

You may have heard about secured and unsecured debt. Secured debt is when your loan is backed by assets (known as collateral) such as your car or home. Mortgages and auto loans are common examples. Because the loan is secured, you may receive more favourable interest rates than with unsecured debt. However, if you fail to make payments, the lender may be able to take away the asset. 

Unsecured debt, on the other hand, doesn’t require collateral. Credit card debt or personal loans are examples of unsecured debt. Lenders typically review your credit score and may have stricter eligibility requirements. Interest rates are often higher than for secured debt because the lender is taking on more risk.

Installment vs. revolving debt

For installment (non-revolving) loans, the lender gives you a lump sum amount. For example, when you purchase a home, you take on a mortgage and make fixed installment payments that include the principal and interest over a set term. This also applies to auto loans, student loans, and personal loans. 

With revolving credit, you’re given a credit limit, say $10,000, and you can borrow as much as you need up to that limit. As you repay what you owe, that credit becomes available to use again. Each month, you must make at least the minimum payment. Otherwise, the interest and the outstanding balance will carry over to the next month. Personal lines of credit, home equity lines of credit (HELOCs) and credit cards are common forms of revolving credit. 

Take stock of what you owe

Sometimes debt can gradually creep up on you, from graduating with a student loan to getting your first credit card as an adult. Before you know it, you might buy a new car and open a personal loan to cover medical expenses. So, it’s understandable to feel overwhelmed when you’re juggling multiple debts. 

To organize your debt, start by listing everything you owe. Be sure to write down the following information: 

This exercise can provide clarity and help to reduce anxiety. Seeing the full picture can make it easier to make better-informed decisions about your repayment plan.

As you put your repayment strategy into action, don’t miss making your minimum loan payments on every debt. If you miss a minimum payment, interest charges will continue to grow, and your balance may become harder to manage in the future.

If your goal is to get out of debt fast, consider tackling high-interest balances first while keeping up with low-interest obligations. 

Best debt repayment strategies for Canadians

When it comes to learning how to get out of debt fast, there’s no single solution. Instead, think of this section as a tool kit that offers a variety of strategies. Each “tool” can work for a different financial situation, personality, or motivational style. Remember, there’s no one right way to get out of debt—what matters the most is that you’re making progress.

Debt avalanche method

If you want to pay off debt as quickly and cost-effectively as possible, the debt avalanche approach could be suitable for you. In simple terms, the debt avalanche method focuses on directing all extra payments to the debt with the highest interest rate first, such as a credit card. If your budget allows, any additional payments toward this balance will help pay it down faster. Meanwhile, you’ll continue to make minimum payments on all your other debts. 

Once the highest-interest debt is paid off, you redirect those payments to the next highest-interest debt. You repeat this process until all your debts are fully repaid. This strategy is ideal for Canadians who are financially disciplined and motivated by saving the most money over time.

The main advantage is that, from a mathematical point of view, it minimizes the total interest paid and is generally the fastest way to become debt-free. However, the “wins” may feel slower if the highest-interest debt also carries a large balance. 

If you choose to follow this method, begin by listing all your debts in order of interest rate, from highest to lowest. Then focus on paying off the one with the highest interest rate first. 

Many people wonder, “What is the best way to pay off credit card debt?” Since credit cards tend to have the highest interest rates in the market, using the debt avalanche method could help you pay down your credit card balance more efficiently and get out of debt faster. 

Debt snowball method

The debt snowball method takes the different approach to the debt avalanche method. It works by focusing on paying off the debt with the smallest balance first, regardless of the interest rate.

If you have additional money available, make extra payments to help the balance shrink faster. Once the smallest debt is paid off, you roll that payment amount into the next smallest balance. The momentum builds gradually, like a snowball. 

This method is best for people who want the psychological motivation of a quicker win to stay on track. The key benefit is that it helps builds confidence and momentum when paying off multiple debts. It can also reduce the number of creditors you owe more quickly. 

An important consideration is that it may cost more in total interest than the avalanche method, depending on your balances. As a tip, be sure to celebrate each paid-off debt because these wins—no matter how big or small—matter and can encourage you to keep going. 

Snowflake method

Another popular debt repayment strategy is the snowflake method. With this approach, you make small, additional micro-payments toward debt whenever extra cash is available. This money could come from a side gig, a tax refund, or even as simple as skipping a coffee purchase. 

You might not think that a few dollars here and there would make a difference. However, if you’re consistent and intentional about putting these amounts toward your debt, these tiny payments—just like small snowflakes that start to pile up—can make a positive impact over time. 

For those with tight budgets who want to accelerate repayment without committing to a rigid system, the snowflake method can be highly effective. It also pairs well with the avalanche or snowball method as a supplement.

If you’re keen on eliminating your debt, every extra dollar directed at the principal reduces the amount of interest you’ll pay. Overall, the snowflake method is a flexible, low-pressure way to shorten your timeline to becoming debt-free. 

Debt consolidation

Balancing a large amount of debt or multiple debts can be challenging for some individuals. Debt consolidation could make paying down debt less stressful. This strategy combines different forms of debts into a single loan or line of credit, ideally at a lower interest rate.

In Canada, you have several options to consolidate your debt, such as a personal consolidation loan, or a home equity line of credit (HELOC). If you have multiple high-interest debts and want a single, manageable monthly payment, debt consolidation could be a viable option to explore. 

Keep in mind that debt consolidation is a tool to help you manage what you owe. You may still need to adjust your spending habits to ensure that, once you reduce your debt, you don’t start racking it up again. 

A potential drawback is that with debt consolidation, you may need a longer repayment period, which could result in paying more in total interest, even at a lower rate. Always do the math to understand the advantages and disadvantages of consolidating your debt. 

How to build a budget that supports debt repayment

If you want to be successful in paying down your debt, it’s important to have a budget that supports your financial goals. In reality, no repayment strategy works well without a solid budget behind it. 

There are different budgeting methods that you can choose from. If you’re unsure where to start, consider the 50/30/20 budgeting rule. With this approach, you allocate 50 per cent of your funds to needs, such as housing and bills, 30 per cent to wants, and 20 per cent to savings and debt repayment. 

It’s also a good time to review your budget and see where you are spending money. Many households have ongoing subscriptions that they may have forgotten about, such as streaming apps, gaming services, software, or fitness memberships. Review your subscription list and see if these services are still worth keeping.

Also examine your dining habits and discretionary spending – everything from a daily cappuccino to take out, car share rides, clothing, or items from the drugstore. These are key areas where people tend to “find money” to put toward debt repayment.

You can also simplify your debt payments by automating them and help ensure that you don’t miss any payments. There are apps available to help you  track your progress, or create a simple excel sheet to track your debt payments and net worth each week or month.  

While there’s only so many costs you can cut within your budget, when it comes to earning extra income, the sky’s the limit. Consider taking on a side gig or negotiating a raise during your performance review. These moves can be just as powerful as reducing expenses. 

Additional tips for paying off debt fast

Figuring out how to manage debt may require trying out different techniques to see which ones work best for you. Here are some additional ways to support your journey to becoming debt-free.

How creditor insurance can help protect your debt repayment plan

Once you’ve established a debt repayment plan, you’ve already taken a significant step toward becoming debt-free. While there’s no single best way to pay off debt, following these strategies above will empower you to make steady progress.

While you work to pay off your debt, you may want to add an extra layer of protection to your finances.

Learn more about creditor insurance and how it works or speak to an accredited advisor who can answer your questions and discuss your options.