Stage · Paying down debt in Canada
Execute the payoff
The most boring stage and the one that actually pays off the debt. Automate everything, set the review cadence, and build a small buffer so one unexpected bill doesn't throw off the whole plan.
What to do this week
- Automate every payment. If it requires manual action each month, it will fail eventually.
- Build a small emergency buffer ($1,000–$2,000) before aggressive payoff, so a car repair does not land on a credit card.
- Set up a 30-minute monthly debt review. Track balances, rates, and progress. Early warning when something goes wrong is far cheaper than discovery months later.
What to avoid
- Closing paid-off credit cards immediately. Keep them open with zero balance for the credit utilization benefit, unless annual fees make that expensive.
- Using balance transfer offers without reading the fine print. Post-promo rates are often higher than your starting card.
- Cancelling all RRSP/TFSA contributions for years to pay down debt. An employer match is a 50–100% return; do not skip it.
Calculators for this stage
Frequently asked
Avalanche or snowball method, which is better?
Mathematically, the avalanche (highest interest rate first) saves the most money. Behaviourally, the snowball (smallest balance first) builds momentum through early wins. Pick whichever you will actually stick with for 2–3 years. Consistency beats optimization.
Should I use savings to pay off credit card debt?
Generally yes. A 23% credit card APR is higher than any risk-free savings return available in Canada today. Keep a small emergency buffer, then redirect savings above that to the highest-rate debt.
Will paying off debt quickly hurt my credit score?
No. Lowering balances reduces your utilization ratio, which is the second-largest factor in your score. Closing accounts after payoff can slightly hurt, but paying them down never does.
How long before my credit recovers after a consumer proposal?
A consumer proposal stays on your credit report for 3 years after completion or 6 years from filing, whichever is earlier. Most people see meaningful score recovery within 1–2 years of completion, especially if they use secured credit responsibly during the proposal.
Next stage
Stay out of debt →