Updated: April 2025  |  bremo.io financial guides

Debt Repayment Plan for Canadians: Your Step-by-Step Guide

Canadian household debt is among the highest in the developed world. The average Canadian owes tens of thousands in non-mortgage debt, including credit cards, car loans, personal loans, lines of credit, and student debt. If you're carrying significant debt, a structured repayment plan is the most powerful tool you have.

This guide walks you through how to build a debt repayment plan that's realistic, sustainable, and optimized for your situation.

Step 1 — Take a Complete Debt Inventory

Most people avoid looking at their total debt picture. Denial is expensive. Start by listing every debt you owe:

• Creditor name
• Balance owing
• Interest rate (APR)
• Minimum monthly payment
• Type of debt (credit card, LOC, car loan, student loan, personal loan)

Calculate your total debt load. Seeing the number clearly is psychologically important — it activates your motivation to act.

Step 2 — Understand Canadian Debt Interest Rates

Not all debt is created equal. Canadian interest rates vary dramatically:

• Credit cards: 19.99%–29.99% APR (some retail cards exceed 30%)
• Store credit cards: 20%–29.99%
• Personal loans: 6%–47% depending on credit score
• Car loans: 4%–12%
• Personal lines of credit: Prime + 2–5% (currently ~7–9%)
• HELOCs (Home Equity Lines of Credit): Prime + 0.5–1%
• Student loans: Prime + 1% (federal), varies by province

High-interest debts (anything above 10%) should be your priority targets.

Step 3 — Choose Your Repayment Strategy

Debt Avalanche (Mathematically Optimal)

Pay minimums on all debts, then direct every extra dollar toward the highest-interest debt first. Once that's eliminated, roll its payment to the next highest-interest debt. This saves the maximum amount of interest over time.

Debt Snowball (Psychologically Powerful)

Pay minimums on all debts, then focus extra payments on the smallest balance regardless of interest rate. The quick wins from eliminating small debts build momentum. Research shows this method leads to higher completion rates despite being slightly more expensive in interest.

Hybrid Approach

Many Canadians combine strategies: eliminate one or two small debts first for the psychological win, then switch to avalanche for the remaining higher-balance debts.

Step 4 — Free Up Money for Extra Payments

Your repayment plan is only as powerful as the extra money you can throw at debt. Identify ways to increase the gap between income and expenses:

• Cancel subscriptions you rarely use — a typical Canadian household has 4–6 unused or underused subscriptions
• Reduce dining out by two meals per week (saves $200–$400/month for many households)
• Negotiate your cell phone plan — Canadians often overpay by $20–$50/month
• Refinance high-rate debt to a lower-rate product (balance transfer cards, personal loans)
• Take on temporary extra income: overtime, freelance work, selling items
• Direct tax refunds entirely to debt — the average Canadian gets back $1,895/year

Step 5 — Consider Debt Consolidation

If you're carrying multiple high-rate debts, consolidating them into a single lower-rate product can reduce your interest burden and simplify repayment. Options for Canadians include:

• Debt consolidation loans from banks or credit unions
• Balance transfer credit cards (0% promotional periods of 6–12 months)
• Personal line of credit
• HELOC (if you own a home with equity)

Consolidation only works if you stop adding new debt after consolidating. Many Canadians consolidate and then run up the original cards again — doubling their problem.

Managing Debt While Building Savings

A common question: should you pay off debt or save? The math suggests paying off high-interest debt first — a 20% credit card rate is equivalent to a 20% guaranteed return. But there are exceptions:

• Always maintain a small emergency fund ($1,000–$2,000) even while aggressively paying debt, to avoid going deeper into debt for emergencies
• Contribute to employer-matched RRSPs regardless — a 50% or 100% employer match typically beats even high-interest debt repayment
• For lower-rate debts (student loans, car loans at 4–6%), you may be better served by investing in your TFSA while making regular payments

Staying on Track

Debt repayment is a marathon. Use a debt payoff tracker — spreadsheet, app, or paper chart — to visualize your progress. Monthly updates showing your debt declining are motivating and help you stay committed when temptation strikes.

Tell a trusted friend or partner about your goal. Accountability increases completion rates significantly. Consider joining an online community like Reddit's r/PersonalFinanceCanada where members share progress and support each other.