Drowning in debt? 7 steps to dig yourself out

CTV News

2 days ago

Paying off debt can feel like an uphill battle. In his column on CTVNews.ca, personal finance contributor Christopher Liew explains how to assess and prioritize your debt, and shares strategies to help you pay it off more quickly (Getty Images)
Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.
If you feel overwhelmed by debt, you're not alone. With rising interest rates, ballooning living costs and everyday expenses piling up, it can seem like an uphill battle to keep up.
One missed payment turns into two, you take on extra debt, you start getting collection calls, and then a couple of unexpected life events and expenses later, you find yourself in a hole that just keeps getting deeper.
The good news is that you can take control, one step at a time. You just have to have a bit of patience and consistency with the right strategies. While getting out of debt certainly doesn't happen overnight, it is achievable.
How to get control of your finances
In the first quarter of 2025, over 1.4 million Canadians missed at least one credit card payment, according to a report from Equifax Canada. While missing a single payment isn't the end of the world, it's typically a sign you could be beginning to fall down a slippery slope.
That said, whether you're in a few thousand or tens of thousands of dollars in debt, here are some simple strategies to help you get out of the hole and get back on top.
Step 1: Separate and prioritize your debts
I tend to be a visual person, especially when it comes to finances. I recommend taking a big sheet of paper or a whiteboard, or a spreadsheet, and writing down:
Each creditor/debt you owe and how much you have left
Your payment amounts and dates
How many missed payments you have with each account
Going one step further, write down the interest rate for each debt that you have. This will help you identify the ones that need to be prioritized.
Two common debt repayment strategies are the snowball method and the avalanche method.
The snowball method suggests prioritizing and paying off small debts first, allowing you to build on small successes. This method is great if you have multiple smaller loans you're dealing with, and the sense of paying debts off one-by-one can be a great morale booster.
The avalanche method suggests prioritizing larger, higher-interest debts first, before moving onto your smaller debts. This method can be great for those who appreciate delayed gratification or want to feel like they're making a meaningful impact on their bigger problems.
Both strategies are solid, but which one you choose depends a lot on your current situation and what's easiest for you to stick with.
Step 2: Stop adding to your debt
Once you have a clear picture of your debts, you need to stop adding to them. With the exception of debt consolidation, make a commitment to stop taking out loans, using buy-now-pay-later programs, or racking up your credit cardt.
At the same time, you should also start hacking your budget by finding small ways you can save on everyday expenses. Even something as simple as not drinking a $5 coffee everyday could save you over $150 per month, and that money could go straight towards paying off your debt.
Step 3: Consolidate or refinance high-interest debts
High-interest debts can be a major problem and are often associated with credit cards, personal loans, or payday loans. These debts often have interest payments that are so high that 80 to 90 per cent of your minimum monthly payment goes purely to interest, making it nearly impossible to make a dent in the principal balance.
For these loans, I often recommend applying for a debt consolidation loan. Banks and lenders often offer consolidation loans, which allow you to combine multiple higher-interest debts into one large, lower-interest loan.
This can do two important things:
Lower your overall interest rate on debt
Simplify your multiple monthly payments into a single larger payment
Additionally, a consolidation loan could help boost your credit score, as your credit will now show that you've successfully paid off several smaller loans. Just make sure that you continue to make timely payments with the new consolidation loan.
If you only have one problematic loan (such as a higher-interest auto loan, for example), your best bet may be to simply refinance the loan at a lower interest rate. As long as you have a good payment history on your existing loan, it usually isn't hard to find another lender willing to pay off the loan and give you a lower interest rate or lower payments.
Step 4: Create payment goals and deadlines
Like the old saying goes, a ship with no destination will never make its way to port. Without clear goals and deadlines, your debt repayment plan could fail before you begin to make any real progress.
As you begin to create an action plan, I recommend creating goals and deadlines for each specific debt. This will help you stay motivated month by month, as you make consistent progress towards each goal.
Step 5: Negotiate more affordable payments
In the event that you're unable to refinance or consolidate certain debts or if you find yourself missing payments more often than you'd like, consider negotiating a more affordable payment.
Often, credit card companies offer hardship repayment plans, which will give you an extended period of time where you'll be allowed to make smaller, more affordable payments. Your interest rate may also be temporarily lowered during this period.
This can be a game changer, as it gives you time to pay off smaller debts and free up more money to pay towards higher-interest debts. To get approved for a lower payment, though, you may need to provide a good reason, such as showing that you're facing financial hardship.
Step 6: Find small ways to increase your income
One of the simplest strategies to get out of debt quicker is to simply increase your cash flow. You don't have to make drastic changes to your career, but some ideas that could increase your monthly income by hundreds (or even thousands) of dollars include:
Asking your boss for a raise (even a $2 per hour raise could get you an extra $300 per month)
Picking up a side gig like with a rideshare or delivery company for an extra few hours on the weekend
Offering a small freelance service like cutting grass, moving boxes, photography, or cleaning on your weekends or days off
Remember, every extra dollar you earn can add up at the end of the month.
Step 7: Make extra interest-free payments when possible
Periodically, you may find yourself with some extra cash. Perhaps you get a work bonus, a birthday gift, win a prize, or pull some overtime at work and get a higher cheque.
One of the best ways to utilize the extra funds is to make additional payments on a debt which you've already made your monthly payment for. The extra money will go purely towards the principal balance (not the interest), which can really help you make a dent in your debt.
Don't forget to reward yourself
Keep in mind that getting out of debt can be a long process. Your first focus should be on catching up on late accounts, lowering your interest rates, and finding a plan you can stick with. Once you catch up where you're behind, your consistency will help you pay down debts, and your credit score will reflect your progress.
As you progress in your journey, be sure to track your progress and reward yourself – even if it's just something small and affordable like buying yourself your favourite snack, checking off a box on your list, or giving yourself a well-deserved recreational day off.
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