9 Steps to Pay Off Your Debt Faster

9 Steps to Pay Off Your Debt Faster

Managing debt can feel overwhelming, but it’s achievable if you have the right approach. And you don’t have to go through it alone. At Credit Canada, we’re dedicated to helping Canadians eliminate debt and take control of their financial well-being.

Our experienced team of credit counsellors pooled their knowledge to create this guide to ditching debt quickly. Here are nine steps to pay off debt faster.

1. Don’t Wait for a Wake-Up Call

Delaying debt repayment can negatively affect your interest rates and credit scores. Waiting too long can also result in the accumulation of interest over time, making your debt unmanageable.

Debt doesn’t have to control your life, but you can’t ignore it, either. Addressing multiple debts now can provide a sense of control and improve your mental health. On the other hand, allowing your debt to get worse can lead to sleep problems, anxiety, and depression.

Addressing your debt problems early can provide peace of mind. Ignoring them only makes them harder to resolve as your options for intervention reduce over time. Seek help as soon as you feel your situation is becoming unmanageable (sometimes, this is well before your first collection call) so you can access as many options to take control of your situation. 

You’ll be empowered knowing that you’re tackling your financial challenges head-on rather than waiting for a crisis.

2. Assess Your Financial Situation

You’ve already taken the most important step: you’ve decided to act. Now, you must take stock of your financial situation. Here’s how:

• List all of your debts: Include credit cards, loans, and any other debts. 

• Note interest rates: Understand which debts cost you the most to prioritize repayments

• Document monthly payments (debts and obligations): Add up the total amount you pay each month. Use our Debt Calculator to input all of the above.

• Compare your income to expenses: Use our Expense Tracker to determine how much you have available for debt repayment after covering essentials.  

This process can be uncomfortable, and that’s okay. If you realize your situation is worse than expected, use this as motivation to seek help to get back on your path to financial success. 

3. Consider Sustainable Spending

When analyzing your income and expenses, we often recommend the sustainable spending method, a long-term budgeting approach for effective money management. Here’s how it works:

1. First, analyze: Take a close look at your income and expenses. Understand how much money is coming in and where it’s going out. Then you can see if you need to increase income or decrease your expenses.

2. Then, brainstorm: Think about ways to improve your cash flow, and ideas that could help you earn more and spend less. Consider setting goals, like saving for emergencies or paying off debt.

3. Finally, change: After you’ve done some analysis and brainstormed some ideas, commit to making positive changes to improve your cash flow.  

When it comes to paying off debt faster, you have two main levers to pull: increasing your income or reducing your expenses. 

If you want to do the former, consider working overtime, taking on a part-time job, or engaging in freelance work.

If increasing your income isn’t an option, you’ll need to cut back on expenses to unlock some funds for debt repayment. (More on this below)

4. Focus on Needs vs. Wants

Credit Canada’s free budget template can help you organize all of your monthly expenses into an easy-to-follow table. Once you’ve determined how much money you need to allocate to monthly expenses, look for opportunities to cut out the excess. Some options include:

• Eating at home instead of dining out

• Cancelling unused memberships

• Opting for generic brands over premium products

• Postponing big-ticket purchases

Here’s a breakdown of essential and non-essential expenses so you can sort through your obligations:

You may be able to find things in your budget that you can easily cut out, like unused subscriptions, costly entertainment, and expensive clothing. However, you’ll also want to ask yourself, what changes are you willing to commit to that will make the biggest difference? 

5. Change Your Biggest Expense

Housing and transportation are often the largest expenses in our budgets. We’re not saying you need to sell your house. However, if you think your living situation stands between you and becoming debt-free, it’s worth considering how shaking things up could help you save money.

You might try:

• Downsizing
• Finding a roommate
• Refinancing your mortgage to lower payments

Consider carpooling or relying on public transit, which can help you save on gas. You might want to look into trading in your vehicle for something more affordable if you have a large car payment. This one simple move could free up hundreds every month and make freedom from debt one step closer. 

6. Choose a Debt Repayment Strategy

Here’s an overview of some popular repayment strategies worth considering: 

Snowball Method

The snowball debt repayment method involves paying off your smallest debt first while making the minimum payments on the rest of your debts. Once you clear the smallest debt, move on to the next. Allocate any money you were putting toward the first payment toward the second, and proceed until you’ve gotten rid of your debts one by one.

Avalanche Method

Alternatively, you can try the avalanche debt repayment method. This is similar to the snowball method, with one twist: you’ll target the debt with the highest interest first. This approach will save you money on interest payments, but it requires a lot of patience, as your highest-interest debt may also be one of your largest accounts.

The avalanche approach can be a better fit if you have a lot of high-interest debt. The debt snowball might be better for you if you want to rack up some quick wins by eliminating a few small debts first.  

Debt Consolidation

Debt consolidation involves combining multiple debts into a single payment. You’ll no longer have to keep up with a half-dozen or more due dates and may end up saving money in interest in the long run.

There are a couple of ways to approach debt consolidation. 

Debt Consolidation Loan

You can take out a debt consolidation loan, which would be used to pay off existing debts. If the loan has a lower interest rate than your existing personal loans or credit cards, you could save money in the long run. However, you’ll need solid credit to qualify for such a loan. If you have a low credit score, lenders may not approve your request or may ask for a co-signer or collateral to secure the loan.

Debt Consolidation Program (DCP)

Another option is a Debt Consolidation Program (DCP), which is offered through non-profit credit counselling agencies like Credit Canada.

Our program can be a good fit for individuals with a lower credit score or limited credit history. Our certified Credit Counsellors will negotiate with your creditors to combine your debts into one monthly payment, often reducing your interest rate significantly. Your debt won’t magically disappear, but it will become much more manageable.

"I had to take out an emergency payday loan for veterinary ICU fees for my dog over a year ago, and paying it back has been completely ruining me financially (missed payments, shuffling money between debt and credit cards, to scrape by for minimum payments, etc). The debt consolidation program has helped me get my interest rate from 47.9% to about 9%. Instead of paying $534/month (267 biweekly), I'm only paying $295/month."

 - Client Testimonial

Comparison Table of Debt Repayment Strategies

7. Set SMART Goals

Setting SMART goals can keep you motivated and on track toward paying off your debt. These goals are specific, measurable, achievable, relevant, and time-bound.

A SMART goal gives you a timeline to work toward with tangible actions and a sense of achievement when you reach it. Here’s how to create your SMART goal:

• Calculate how much debt you have, your income, and expenses

• Calculate how much you can realistically pay toward your debt monthly

• Divide your total debt by this amount to estimate your payoff date

• Adjust payments to meet your goal as needed

For example, instead of saying “I want to pay off all my debt,” create the following goal: “I want to pay off all my debt in two years. I will do this by paying $500 toward my debt every month and track my progress every quarter to stay on track.”

Your debt-free date may be months or even years away. The following tips will help keep you on track:

• Celebrate small victories

• Adjust your plan if your financial situation changes

• Use a visual tracker to monitor your progress

Let’s say you get a pay raise and can afford to put an extra $500 monthly toward your debt. This development would adjust your timeline. You could knock months off your original deadline and save thousands in interest. Use our Debt Calculator often as your circumstances change as a motivator to stay on track.

8. Lean Into Support

You don’t have to deal with the stresses of debt alone. Seeking support from family, friends, or professionals can make a huge difference.

Credit Canada provides free, personalized plans and one-on-one counselling. Our certified Credit Counsellors will work with you to create a strategy tailored to your needs and goals. Many Canadians have found success through our services, gaining the necessary knowledge and confidence to manage their finances effectively. 

You can also apply for Credit Canada GOLD, a financial coaching program that helps you make sustainable changes to get out—and stay out—of debt.

Apply for Credit Canada GOLD.

9. Avoiding Common Debt Repayment Mistakes 

There are many harmful debt management myths and mistakes that can keep you from becoming debt-free. Some pitfalls you’ll need to watch out for include:

• Taking on new debt while repaying existing debt

• Missing payments

• Underestimating interest costs or overestimating your ability to make payments

For best results, stick to your budget and repayment plan and use automatic payments to avoid missing due dates. While holding yourself accountable is important, don’t forget to show yourself some grace and patience. 

Mike Bergeron, Counsellor Manager at Credit Canada, encourages those trying to pay off debt to take a slow and steady approach. “Don’t push yourself too hard when it comes to paying your debt off quickly. It may backfire on you,” he says. “Slow and steady wins the race comes from consistent effort and perseverance.”

Additional Resources and Tools for Debt Repayment

Credit Canada offers a range of free tools, including budgeting worksheets and financial literacy materials, to help you manage and eliminate debt. Debt calculators are another great resource you can use. These tools reveal how long it will take to pay off credit card balances, personal loans, and other obligations. 

Crush Debt With Credit Canada

Paying off your debt quickly requires focus and discipline. Sometimes, a little extra help and guidance is all you need. Credit Canada is here to work with you every step of the way.

Don’t wait to take control of your finances. Contact us today to speak with one of our knowledgeable credit counsellors and learn how to pay off your debt faster!