4 Steps to Get Out of Debt Before Interest Rates Rise (Again)
By Julie Jaggernath
You might be feeling a little breathing room with interest rates having come down from their peak after the pandemic. That’s a good thing, but rates are still higher than the historic lows Canadians got used to before 2022, and the economic picture ahead is far from certain. Trade tensions, market volatility, and ongoing cost of living pressures mean that now is not the time to get comfortable with debt – it’s the time to tackle it and get out of debt.
If you’ve been carrying credit card debt, a line of credit, or other loans, the window to make progress while your payments feel somewhat manageable may not stay open forever. Here are four practical steps to help you get started.
1. Make a Plan to Pay Down High Interest Debt First
It’s become so normal to carry a balance that many people don’t stop to think about what their debt is actually costing them. Anyone who has used a line of credit to pay off credit card balances each month knows how easy it is to feel like you’re managing, without ever actually getting ahead.
The most effective approach is to focus your extra payments on your highest interest debt first. This is sometimes called the avalanche method, and for good reason: it reduces the total interest you pay and gets you out of debt faster. Once that balance is cleared, roll those payments toward the next debt on your list.
Which is Better, an Avalanche or a Snowball? Try This Free Calculator to Find Out!
A realistic debt repayment plan doesn’t have to be perfect to work. Start with what you know by listing your debts, their balances, and their interest rates. Then decide which one to attack first. If you’re not sure where to begin, a free appointment with one of our friendly, non-profit credit counsellors can help you map it out.
2. Stop Adding to Your Debt & Start Building a Small Financial Buffer
This one is harder than it sounds but it’s truly the only way to get out of debt. The available limit on your credit card or line of credit is not an extension of your paycheque, even when it feels that way. If you want to break the cycle, try putting your credit cards away and living on cash for at least one month. It’s a genuine eye-opener.
Start setting a small amount aside each payday, even $25 or $50, into a separate account earmarked for these kinds of costs. Over time, this becomes your buffer, and it’s genuinely one of the most powerful tools for staying out of debt. Think of it less as emergency savings and more as pre-paying for the expenses you know are coming.
Do You Think of Savings as an Important Expense? It’s the Best Way to Stay Out of Debt
3. Create a Spending Plan You Can Actually Stick To
Call it a budget, a spending plan, or whatever name makes you most likely to use one. The point is the same: you can’t live within your means if you don’t know what your means actually are. And with the cost of living remaining stubbornly high for most Canadians, having a clear picture of where your money goes is more important than ever.
A good spending plan accounts for all of your real expenses, including the ones that only come up a few times a year, and it assigns your money a job before you spend it. If you and your partner don’t agree on every line, start with what you can agree on. Progress is more important than perfection.
It also helps to track your spending for a few weeks before building your plan. Most people are genuinely surprised by what they find. Small daily purchases add up quickly, and simply becoming aware of them often creates immediate room in your budget to put toward debt repayment.
Before Giving Up on Budgeting, Give an Alternative Method a Quick Try
4. Take Advantage of Lower Rates While They Last
If your current interest rates feel manageable right now, that’s exactly the right moment to act. Variable rate debt, including most lines of credit and variable rate mortgages, moves with the Bank of Canada’s policy rate. When rates go up (and historically, they do), those payments go up too.
Consider whether debt consolidation could simplify your payments and lower your overall interest costs. A consolidation loan or a Debt Management Program can combine multiple debts into a single monthly payment, often at a significantly reduced interest rate. The key is to stop using credit once you consolidate, or the strategy won’t work.
Tackle Debt & Get Out of Debt When Interest Rates are Low(er)
It takes time to get out of debt, but every step forward reduces the risk that a future rate increase will knock you off course. The best time to build your plan was yesterday. The second-best time is today, so if you’re not sure whether consolidation makes sense for your situation or if your debt feels truly overwhelming, reach out. The Credit Counselling Society offers free, confidential, non-judgmental appointments and guidance. There’s no obligation, just honest information and a path forward. We’re truly here to help you.
