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Canadians owe a staggering $2.5 trillion in household debt — here’s how to chip away and finally breathe free

Debt: Almost all Canadians have it.

In fact, Equifax Canada’s Market Pulse Consumer Credit Trends and Insights Report found that consumer debt levels rose to $2.5 trillion at the end of hte first quarter of 2025 — a 4% year-over-year increase. TransUnion estimate that consumer debt, across all credit products, hit a record $2.5 trillion in Q1 2025 — driven, in part, by a 3.2% rise in credit card balances.

Based on this data, the average credit card balance per Canadian is estimated to be $4,499 — an increase from the the per person credit card balance of $4,265 in 2023.

Canadians have been in debt for a long time, and depending on your debt levels, it might seem intimidating to conquer this neverending cycle of interest payments and overblown balances, but it’s possible. Here are two strategies and some expert tips on how to get out of debt.

Different types of debt

Wait? Before we dive in, let’s first be clear: What is debt? Debt is an amount of money borrowed by one party and owed to another. Here are some examples of debt:

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Some Canadians don’t consider their mortgages, car loans or student loans to be forms of debt, but this is incorrect. Any time you owe money for something you bought, you are in debt.

But that doesn’t make all debt bad — and the urgency to pay off debt isn’t the same for all types of loans.

Turns out different debts have different levels of urgency. This urgency is related to how much your debt is costing you per month, which is determined by its interest rate, and what you used this borrowed money to buy.

In most cases, short-term debt — such as credit cards — cost more because you pay higher interest rates. The interest rate is the amount a lender charges, usually expressed as a percentage of the total loan amount (or principal). It could be as low as a few percentage points (ie: 2% or 4%), or as high as hundreds of percentage points (150%).

As a result, most debt falls into one of three categories: high-interest, medium-interest and low-interest debt.

High-interest debt

High-interest debt has an interest rate in the double digits (or higher). Financial products with interest rates this high can easily cost you much more than the original purchase price, even if you are carrying a relatively small balance.

In terms of urgency and priority, debt with high interest should be your top priority. That’s because they cost so much to service — a financial term that explains how long it takes to pay off the loan. Examples of high-interest debt include:

Now, when I say these debts will cost you hundreds in interest, I mean it. For instance, if you carry $5,000 on your credit card at 19.99% interest, and you only make the minimum monthly payments on that debt, it will take you 20 years to pay off that debt, and you’ll pay $5,983 extra in interest payments.

Medium-interest debt

Medium-interest debts have interest rates in the range of 5% to 15% and should be your next priority when it comes to paying off debt. Examples of medium-interest debt might include:

Despite generally having lower interest rates than high-interest debts, these debts can actually be harder to pay off because the balances are typically higher and require more months of sustained effort. Still, it’s worth it to tackle and pay off this type of debt because making only minimum payments will cost you thousands of dollars in interest over time.

For example, if you graduate with $25,000 in student loan debt at an interest rate of 6.75% and a loan term of 10 years, you’ll pay an extra $9,447 in interest payments, as you pay off that original sum.

Low-interest debt

Low-interest debt should be your lowest priority to pay off, and in some cases, if the interest rate is low enough, it makes more sense to prioritize saving and investing instead. An example of a low-interest debt is a mortgage. Mortgage interest rates in Canada were at an all-time low just a few years ago, and while rates have climbed many Canadians have mortgages at interest rates much lower than other forms of debt.

For example, I have a five-year fixed rate mortgage with an interest rate of 2.29%. I could tackle this debt by directing all my financial resources toward its repayment, or I could invest that money in a high-interest savings account earning 2.30% or Guaranteed Investment Certificate earning 3.00%. In both scenarios, I would earn more interest on my money if I saved it in these save investment products or accounts rather than paying down my mortgage.

Strategies to get out of debt

The math behind getting out of debt is simple, and it starts with a budget. You’ll need to create one that starts with your income and subtracts your monthly expenses like rent, groceries and car payments. Whatever is left over should go toward paying off your debt. You can direct more money toward your debt by earning a raise at work, starting a side hustle or cutting your expenses. Any bonus money you earn like income tax refunds or birthday money should also go toward your debt.

That’s the math side of things. The psychological side is another story. Living on a restrictive budget for an extended period can be mentally draining, which is why it’s important that you attack your debts with a strategy that, when executed, keeps you motivated until that final dollar is paid off.

Here are two primary strategies for debt repayment that are designed to keep you motivated throughout your debt repayment period.

Debt snowball method

The debt snowball was popularized by Dave Ramsey and sets you up for quick wins by tackling the smallest debt first. The idea is that you’ll gain confidence and momentum by succeeding in knocking out those smaller debts, which allows you to tackle your bigger debts with enthusiasm.

The debt snowball method requires you to order your debts from the smallest balance (or principal) to the largest, and to pay them off in that order. For example, pretend you have the following debts:

Based on the snowball method you would pay these debts off in the folloing order: Debt #1, Debt #2 and then Debt #3.

Interest rate method (aka: debt avalanche method)

The interest rate method, on the other hand, requires you to order your debts from the highest interest rate to the lowest. Also known as the debt avalanche method, this strategy works by getting you to tackle debt that costs you the most on a day to day basis. What this means is you may not get an immediate gratification of paying off a debt before moving on to the next debt, but by using the debt avalanche method, you do pay off your debt faster as it has you reduce the cost of your debt, quickly, freeing up more money to pay off more debt. As a result, the same person with the same debts would pay off these debts in the following order:

How to choose between the debt snowball and the debt avalanche method of repaying debts?

Which method you use to tackle your debts ultimately depends on your personality. If sheer numbers matter the most to you and you want to be sure you are maximizing every dollar you allocate toward your debt, pick the interest rate method. If you relish the idea of quickly paying off and closing your smaller accounts, i.e. if you’re the type that looks at a long ‘To-Do’ list and feels gratification and stress relief from checking items off it, the snowball method might suit you well.

Where to find debt relief in Canada

If your overall debt load is too much to handle, and you need some debt help, you have several options for debt relief in Canada that won’t immediately impact your credit score.

Negotiate with creditors

The first thing to do is call your lenders and explain the situation to them. Ask them if they can give you any relief on your loans, whether that is lowering your interest rate or forgiving some of your balance. Your success rate with this negotiation tactic may vary from one creditor to the next, but it’s worth a try.

Try debt consolidation

Debt consolidation is sometimes referred to as refinancing and is usually offered through a bank or financial institution. This strategy allows you to lower your debt interest rates and combine all or most of your debts into a single monthly payment.

Using a 0% balance transfer credit card

If you have high-interest debt like credit card debt, consider a promotional balance transfer offer to reduce your interest rate to as close to 0% as possible.

Make sure you only transfer an amount that you are confident you can pay off during that promotional period, as interest rates on your newly consolidated debts will increase after the promotional period ends. Another approach is to consolidate debts into a large, low-interest loan).

Stretch your money further — find the right low-interest credit card using the Money.ca credit card comparison tool.

Using a lower interest debt consolitation loan

If you need one place to go to compare loans and find the best debt consolidation loan suited to your needs, you’ll want to try Loans Canada.

A caveat with this strategy is the risk that history will repeat itself. If you transfer your high-interest credit card debt to a consolidation loan or balance transfer card, you must diligently work to pay your consolidated debt off and avoid running up new ones. Otherwise, you’ll be in a worse position overall.

Seek outside assistance

If you have provincial student loans, most provinces offer debt help by forgiving some of your loan or by allowing you to make interest-only payments while you pay off your other higher interest debts.

If you’ve been struggling with consumer debt for years without making progress, credit counselling might be a good resource for you. Also referred to as a debt management plan, credit counselling is offered by several registered charities throughout Canada. These charities can also be excellent sources for debt advice, even if you don’t end up using their services.

Credit counselling entails drawing up a voluntary agreement between you and your creditors to pay back 100% of your debts, plus an administrative fee to the charity. The charity, in turn, provides you with the counselling you need to pay off your debts once and for all. Credit counselling negatively impacts your credit report, so only pursue this avenue if you need to.

Finally, there are more drastic debt relief options, like a consumer proposal or bankruptcy. You should consider these a last resort because, like credit counselling, these options will have a negative impact on your credit score for years.

For many Canadians, debt is a way of life, but it doesn’t have to be. If you follow the strategies outlined above and pursue your debt repayment with intensity, you can kick your debt habit once and for all.

Sources

1. Equifax Canada: Economic Pressures Could Impact Credit Performance of Consumers, Especially Young Adults (Aug 27, 2024)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.