How to Reduce Debt - Methods For Getting Out of Debt

If you are struggling with debt and would like to learn how to reduce debt as quickly as possible – without going bankrupt or making a consumer proposal – we’ll show you some of the tried and true ways to reduce debt in Canada.

These tips and strategies really work, but they take some effort and dedication.

We’ve broken down these tips and strategies into sections on freeing up extra money to use to pay down your debt and tips on how to reduce debts you already have.

The first step in reducing your debt is to free up the money you need to pay down debt, while the second steps involve using that money to pay off and eliminate your debts.

If you have heard of a consumer proposal or filing bankruptcy, we can explore these debt relief programs with you as well.

There are benefits and drawbacks to both a consumer proposal or bankruptcy, but that is not what this article will explore, as these debt relief programs are not for everyone in debt.

The tips and advice presented here will work for almost everyone.

If your debt problem is really serious you can explore a consumer proposal or bankruptcy with a Licensed Insolvency Trustee.

How to Free Up Some Money to Reduce Your Debt

Step 1: Create a Spending Plan

The first step in getting debt problems under control is to create a spending plan (or a budget) that shows you how much money you have available to work with.

Find the amount of money you have to put towards debt repayments by putting together a spending plan by adding up all of your expenses and the subtract the amount from your monthly income.

What is left you should use for saving and paying down debt.

Some people will find they have nothing left or are even spending more than they earn.

In this case, you will need to find ways to reduce your spending and/or increase your income.

Additionally, you might need to sell some of your assets to pay down your debts.

We like to use the term “spending plan” because some people are put off by the idea of budgeting.

Although if you want to get out of debt and control your finances, it is important you learn how to budget.

Step 2: Stop Using Credit Until Your Debt is Under Control

There are many studies that show people spend more when they are using credit as opposed to cash.

Average Canadian households spend over $3,000 extra a year by using credit instead of debit or cash.

The $3,000 extra you spend on credit could go a long ways to reducing your debt.

If you really want to pay down your debt stop using your credit until you are out of debt.

Don’t use your credit card.

Don’t use overdraft.

Sometimes you will have to use a new chequing account.

Sometimes using credit is unavoidable.

In this situation, treat the credit payment as a bill – don’t spend money on your credit card unless you have the money in your bank account to pay it off.

Immediately put the money towards paying off your credit bill, so that you don’t end up spending the money on something frivolous.

Step 3: Improving Your Mindset Towards Credit and Money

Changing your money attitude and mindset towards credit is a necessity to tackle debt problems.

Society can often encourage people to have financially unhealthy spending habits and attitudes towards debt and money.

Instead, adjust your money mindset towards learning to live on less.

It is important to learn how to trim your spending until you have the actual money in the bank to spend.

Get comfortable with saving up for everything you buy.

Credit should only be used for emergencies or purchases that you need to use a credit card for.

You are not entitled to every shiny new phone or to get a new car every few years, no matter how easy the TV commericals make it seem to do so.

You must learn how to earn the right to purchase things by saving up for them.

Learn how to get out of the entitled mindset.

People with lots of debt and feel entitled to spending money need to change how they view money.

Find ways to get pleasure or find happiness that doesn’t cost money.

Find an affordable hobby, take a walk, or spend time with your family and friends doing something outside.

Cut the cable and use Netflix or TV streaming websites.

Once you get back into the habit of saving money for things you want to buy, you will be surprised at how easy it becomes!

Another thing you must change your attitude towards is the credit that is available to you.

Available credit on your credit card or overdraft is not your money.

The money belongs to someone else, and they would love for you to borrow it – at a very high rate of interest.

It becomes much easier to save money when you start viewing credit as someone else’s money that will cost you an arm and a leg to borrow.

The money mindset of “I don’t have the money to buy this item. I will save money until I have the money available in the bank to buy it” will greatly help you reduce your spending, and help you get out of debt as fast as possible, while paying as little interest as possible.

To start proper thinking about credit use, remember if you start to use more than 30% of your credit limit on your line of credit, overdraft or credit cards, your credit score will be negatively impacted.

Step 4: Finding the Extra Money to Pay Down Your Debt

Reducing and getting out of debt is much easier if you have extra money that you can regularily put towards your debt on a regular basis.

Once you have improved your attitude towards debt, you will get motivated to pay off your debt and will find that you want to put all the extra money you can towards paying down your debt as quickly as you can.

Here we’ll explore some tips to free extra money up to pay down your debt.

First, make sure you create a budget / spending plan and review your spending.

You will be surprised at how much money you can save by trimming or cutting expenses.

Cutting down your expenses doesn’t have to last forever – just do so until your debt is paid off and after you will be surprised how easy it has become.

You can also make a new plan as soon as you have paid off your debt.

Other ways to find extra money includes learning how to save money on groceries and to cut down on dining out.

You might be surprised how much money you waste on food and alcohol.

If you enjoy a glass of wine, try buying in bulk at your local liqour store instead of going to a restaurant every week.

Learn how to cook your favorite restaurant recipes so you can recreate them at home.

You can find extra cash to pay onto your debt by selling some of your valuable assets on Craigslist or Facebook marketplace.

Try holding a garage sale to sell some of your cheaper stuff lying around the home.

Lastly, consider suspending contributions to your savings accounts, or even moving money from your savings accounts such as your TFSA, RESPs or RRSPs.

Your debt is costing you much more in interest than you are earning on your savings accounts.

However, if you move money out of savings accounts make sure your tax hit won’t be too high.

Also, we don’t recommend diverting money from your savings accounts if you receive matching funds from your employer on RRSP contributions, for example.

Once you have paid off your debt you can begin saving again.

Ways to Reduce Your Debt as Quickly as Possible

Now that we’ve explored how you can find extra money for paying off your debt levels, we’ll help you find strategies to reduce your debt.

Step 1: Pay Loans Bi-Weekly Instead of Monthly

Once you have created your spending plan and have an idea on how much you can pay towards your debt each month, the first thing you should do is switch any loans, such as your mortgage, to bi-weekly instead of monthly.

While it can seem that you are paying the same, bi-weekly payments actually give you 1 extra payment a year which can help you pay off your loan sooner.

For a mortgage this simple change can mean paying your loan off years sooner and saving thousands in interest charges.

This is a very simple tip to get your debt under control.

Additionally, try rounding up each payment, which will help you pay down your debt even faster.

Some loans won’t allow you to do this so check with your lender.

However, if you can take advantage of these tips we highly recommend doing so.

Step 2: Reduce Your Credit Card Debt With the Snowball Method or the Approach of Paying Off the Highest Interest Cards First

Two popular tips for paying off credit card debt, and other high interest debt is to focus on paying off the highest interest loans first or paying off the smallest loans first (known as the debt snowball method).

The benefits of paying off your highest interest loans first are obvious – you won’t pay as much interest.

The benefits of the debt snowball method gives you a sense of accomplishment, which can give you motivation to get out of debt!

Paying your highest interest debts first can save you money, but most people don’t get inspired by the math of getting out of debt in this method.

Therefore, often the best method to focus on is the debt snowball method.

As the name implies, your debt repayment becomes a snowball – the more debt you pay off the faster and bigger the debt repayment becomes.

How Do These Methods Work?

Method 1: Paying off your highest interest – and most expensive – credit card debt first

By using this method you will make a list of all of your credit cards and write down the interest rate for each card.

You’ll only pay the minimum payments on your lower interest debts, and put all of your extra funds towards your highest interest credit card.

Once you’ve paid off the highest interest cards, you will then focus your attention and money towards paying down the card with the second highest interest rate, and so on and so on.

This method is used to save the most money and allowing you to get out of debt faster.

Method 2: The Debt Snowball Method – Pay off the Debt With The Lowest Balance First & Work Towards Paying Off Your Largest Debt Last

With this debt snowball method you will list your credit card balances from the smallest balance to the highest balance.

You will pay the minimum payments on your highest balance cards, and focus all of your money towards the card with the smallest balance.

Focus on freeing up as much money as you can to paying off the smallest balance first.

You will pay off the balance faster, and you will have one debt completely paid off – and have one less thing to worry about.

The feeling of accomplishment will leave you feeling great as you knock off debt after debt.

As you pay off each card, you can take the money you would spend on the minimum payment for those cards and put the money towards your other debts.

The amount of money you have available will only increase following this method – like a snowball rolling down a hill, hence the name of this method.

You will feel like you are making progress sooner, which is encouraging and allows you to continue to be motivated to keep paying your other debts.

Follow the method that you think will work best for you!

Step 3. Using a Debt Consolidation Loans

If you can qualify for a debt consolidation loan, this might work for you.

However, using a debt consolidation loan isn’t a good method for many people.

Without tackling the route cause of your debt problem, a debt consolidation loan can only make your debt problem worse.

If you qualify for a debt consolidation loan at fair interest rates, you must be very careful to stick to your budget and spend less than you earn.

Unfortunately, people that get a debt consolidation loan ofen end back in debt at square one.

Learn from the mistakes of others and don’t relax when you have a debt consolidation loan by thinking everything is good now and the problem has been solved.

You must fully pay off the loan before you can relax.

A tip if you get a debt consolidation loan is to lower your credit limits once you’ve received your loan – this will help your debt levels stay low and affordable.

Step 4: Tracking Your Debt Repayment Progress Monthly

To make sure your efforts are working, you must keep track of your debt each month – to ensure your balances are going down each month.

Tracking how your debt is constantly going down will keep you encouraged and motivated and will ensure that your debts are actually being reduced.

Sometimes you might get relaxed if the plan is working – but this will show up in your balances and kick you back on track at the end of the month.

Step 5: Find Ways to Increase Your Income

While this method of reducing debt is the most challenging, it can be the fastest way you can get out of debt.

Adding another source of income that you exclusively put towards your debt can allow you to get out of debt in no time.

While it won’t be easy – or all that fun – getting a second source of income will save you money and get you out of debt as fast as possible (without resorting to bankruptcy or a consumer proposal).

Ways to increase your income could include getting a second job, lending your skills as a tutor, teaching English online to foreign students, or renting out a spare room on Airbnb.

You could also work as a freelancer if you have an in demand skill on sites such as and

Do what you have to do to increase your income and get out of debt as soon as possible.

Step 6: Sitting Down With a Licensed Insolvency Trustee, the only Licensed and Regulated Debt Consultant in Canada for a Free Debt Relief Evaluation

If you have tried everything you can to get out of debt but are still struggling to pay off your debts, you might need professional help.

This is where a Licensed Insolvency Trustee, or LIT, comes in.

Trustees are experts at helping people assess their financial situation and finding the best way to get out of debt.

Trustees will meet with you for free and help you analyze your debt problems.

In some cases a trustee might advise you go bankrupt or make a consumer proposal, but they might recommend other ways in which you can get your debt under control.

We are happy to meet with you or discuss your situation over the phone.

In Conculsion

Using these tips and strategies presented here can help you get out of debt.

However, if you need more serious debt help our friendly and experienced licensed insolvency trustees are available to help you explore more in depth debt relief solutions such as Canadian bankruptcies and consumer proposals.

We can help set you firmly on the track for debt relief.

Give us a call today if you need!

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