Managing Credit & Debt

Sometimes managing credit and debt may seem like an impossible challenge, however, there are a number of approaches you can take to make it easier. Simply knowing some of the most important things to consider when getting a credit card can set you on the right track for success. Once you start incurring debt, determining the repayment strategy that is best suited to your circumstances will ensure that you are headed towards a financially rewarding future. 

Interested in learning more about handling debt? Attend one of our free workshops

Before making any financial decision, please consult a financial advisor to ensure it is recommended for your individual circumstance.


Debt repayment strategies

There are two main approaches you can take to debt repayment, and one may be more suitable to you depending on your personality. If you are someone who enjoys working hard for the big reward, you may prefer the avalanche strategy, whereas if you are someone who likes to see small wins to motivate yourself, the snowball strategy is a great option!  

Avalanche strategy 

One approach is the avalanche debt repayment strategy. Just as an avalanche moves down a mountain from the top to the bottom, this strategy encourages you to tackle the highest-interest debt first. First you need to determine the amount of funds you can allot each month to debt repayment. Next, begin by paying each debt’s minimum monthly payment. The remaining funds will then be put towards paying off the highest-interest debt first. 

Once it is paid off in total, the extra money left after making the minimum monthly payment would be put towards the second-highest interest debt. The main advantage of this approach is that it reduces the amount of interest you pay, by eliminating the highest-interest debt as early as possible. This method also limits the total amount of time it takes to get out of debt, because interest will not add up as quickly. 

Snowball strategy 

An alternative approach is the snowball strategy, where you will begin by determining the amount of funds you can allot each month to pay off your debt. Following this, list each of your debts from smallest to largest. Pay only the minimum monthly payments on all of the debts, and then apply extra money to paying off the smallest debt first. Once the smallest debt is paid off in full, start putting the extra money from that debt payment towards the second-smallest debt.

You are snowballing your debt payments together. Paying off debts can seem more manageable with this method as you will more easily and quickly reduce some of the smaller debts off the list. The main advantage of this approach is that you will more quickly see your first debt paid off because you are starting with the smallest debt, but you will end up paying more in interest because you are not beginning with the highest-interest debt. 

Try out the strategy you think suits you best, and if you find you are not successful, consider switching to the other approach to see if you have more luck!


Credit cards 101

Before you apply for a credit card, it is important to understand the pros and cons so you can decide what is right for you. While debit cards appear to be the better option as you never incur debt, having good credit will allow you to more easily access loans in the future. 

Even if you already own a credit card, here are some tips for credit card applications, building good credit, and using your credit card mindfully: 

  1. Shop around: Did you know that all of your credit card applications stay on your credit report? Because of this, you want to be smart about selecting a card that is a good fit for you. The Financial Consumer Agency of Canada has a credit card selector tool to help with this process. Limit the number of cards you apply for at once, as this can affect your credit score. It is recommended to leave six months between applications. If you need more assistance picking the best card for you, try using this credit card selector. 
  2. Evaluate rewards: Rewards programs can be enticing, but it is important to ask yourself a few questions before committing to one. Consider if the reward is useful and valuable enough to outweigh potential cons, such as increased interest rates or annual fees. Be sure to fully understand what the reward is worth and any potential special terms and conditions. 
  3. Determine interest rates: While it is ideal for you to pay your outstanding balance in full each month, it is important to understand the cost associated if you are unable. To learn how to reduce the amount of interest you will pay, check out the Government of Canada's credit card payment calculator to compare and contrast three alternative payment options.
  4. Manage your score: Having a strong credit score will greatly benefit you in the future, such as when trying to rent a property or take out a loan. Keep your credit score high by making payments on time, minimizing outstanding balances, and limiting taking on new debt. 
  5. Check your card: Keeping track of your expenses throughout the month will help ensure that you have the funds available to pay your bill when it comes due. This will also help you catch any suspicious activity that could be signs of fraud.