The Worst Ways to Get Out of Debt: It is a trite but true saying that before a problem can be solved one has to recognize that there is a problem.

Some only recognize there is a debt problem once they start getting phone calls from collection agencies. For others it hits home when their wages are garnisheed. No matter how they came to realize it, what’s important is how they are going to get out of debt.

When in panic mode, people desperately look for money to pay off their debts. They often contact their financial institutions to get a loan. Often their bank will not lend them any money because of their poor credit rating.

In desperation people look for any other means to pay down their debts.

Here are the worst ways to get out of debt:

  1. The Worst Ways to Get Out of Debt: Get cash advances on a credit card

Cash advances on a credit card may be helpful if an unexpected event occurs. However, it’s a serious mistake if you are relying on this solution to pay back your debts.

Interest on cash advances are expensive; in some cases 21%. The interest is daily from the moment money is withdrawn.Using this method is more likely to increase your debt rather than pay it down.

  1. The Worst Ways to Get Out of Debt: Pawn shops

To borrow money from a pawn shop you will have to pledge collateral. The worth of the collateral required by the pawnbroker will be much higher than the amount of money you borrow.

This is at best a short term solution and will not help in reducing your debts.

At that point, why not choose instead to use local classifieds Web sites like Kijiji or Craigslist? You could sell goods you do not use anymore on your own. You will then be able to keep for yourself all the proceeds of such sales.

  1. The Worst Ways to Get Out of Debt: Payday loans

A payday loan, is meant to tide you over until payday. Repayment is usually required within two weeks or on the next payday.  It is not the solution for reducing your debts.

  • Payday loans can be used to cover a cash shortfall until your next pay;
  • Borrowers with poor credit who cannot obtain alternative financing are often eligible for payday loans;
  • Payday loans are regulated provincially; with strict rules in place regarding interest rates, fees that can be charged, the number of loans allowed with one loan company and collection practices.

Payday loans are very expensive.

If you borrow $300 for two weeks, and repay the loan in full and on time, you will pay as much as $63 in interest, which is the interest rate in Ontario. That works out to an annual interest rate of 546%.

  1. The Worst Ways to Get Out of Debt: Borrow from friends or a family member

This seldom works because you are just trading one creditor for another. Unless you change your lifestyle you will stay in debt. Worse, you are taking take a chance on losing a friend. I don’t know anyone who has too many friends. Remember your Shakespeare: “Neither a borrower nor a lender be, for loan oft loses both itself and friend,”

  1. The Worst Ways to Get Out of Debt: Cash in your RRSPs

This is another bad idea. RRSPs are for your retirement.

If the worse happens and you have to file bankruptcy or a proposal, RRSPs are exempt from seizure.  In some provinces the contributions in the 12 months prior to the bankruptcy are clawed back for the benefit of the creditors.   In other provinces the full amount of the RRSP is exempt from seizure.

Canada’s law makers want you to use your RRSPs only for your retirement and not for paying down debt.  That is why they made RRSPs exempt.


The best solution for paying off your debts – This is the advice I would give to my best friend or my child.

  • My # 1 Recommendation – Tighten your belt and get out of debt on your own.
    Unless you have some catastrophic debt such as a huge loss in a court case or some other financial disaster, this is my #1 recommendation.  This requires sacrifice and dedication but many people do it. You will get a tremendous sense of pride and accomplishment in getting out of debt on your own.   Here are a few simple plans to follow to pay off your debts.
  • My # 2 Recommendation – Use a Licensed Insolvency Trustee.
    There are many advantages to using a trustee over any other debt professional.  You will find it the least expensive and the advice will be professional and unbiased, without any conflicts of interest.

If you have any questions about this or any other matters there are three ways for you to get answers:

  1. Find a Trustee in your area, where you can make an appointment to see a trustee for a FREE confidential, no obligation consultation or request a Confidential Callback;
  2. Telephone Toll Free 1-877-879-4770 (24/7) to book a FREE Consultation;
  3. Use our confidential, anonymous “Ask a Trustee” feature to ask your questions. You will receive your answer within one business day.