For some Canadians, tackling credit card debt can feel overwhelming. However, with the proper planning and strategies, you can take control of your finances.
Canadians are struggling with finances now more than ever.
According to MNP Ltd., the largest insolvency firm in the country, the latest Consumer Debt Index revealed that more Canadians feel more pessimistic about their finances going into 2025 — 50 per cent are $200 or less away from insolvency. Consumer credit debt reached a record high of $2.5 trillion, according to a November 2024 report by TransUnion.
Although the situation might seem dire, there are ways to reduce credit card debt and improve one’s credit score, according to one expert.
Natasha Macmillan, director of everyday banking at Ratehub.ca, offers advice on managing credit card debt.
Break bad habits
“Certain habits can trigger red-flag spending, pushing Canadians into higher credit card debt,” said Macmillan.
These can include living beyond one’s means, impulsive spending, failing to track expenses, depending on credit for everyday purchases, and only paying the minimum balance.
“Over time, these behaviours can snowball, leading to a cycle of debt that’s hard to break,” she said.
Instead, track your finances with apps tailored to your needs. Use Mint or Wellspent to gain a comprehensive view of your finances. If you want something more detailed, YNAB and Tangerine are the best options. You can also use a spreadsheet or readymade templates.
Build an emergency fund
Did your laptop die? Were you hit with sudden car repairs? The unexpected can happen at any time. That’s why building an emergency fund ensures you’re prepared.
“Not building an emergency fund can force people to rely on credit cards again when unexpected expenses arise,” said Macmillan.
Pay it off in manageable chunks
Often, people focus on paying off debts with low interest, a mistake that can hinder progress. Instead, Macmillan suggests paying off high-interest balances first.
“Many also make only the minimum payments, which extends debt repayment and increases the amount paid in interest,” she said.
Additionally, you could make multiple payments throughout the month, lowering your average daily balance, which will, in turn, lower interest charges. This can result in a lower credit utilization ratio, improving your credit score. Paying your credit card throughout the month reduces your likelihood of missing payments or accruing fees.
Macmillan suggests manageable weekly or biweekly payments.
“This strategy is one way to help pay down debt faster and more effectively,” she said.
Consolidate your debt
If you’re struggling with high interest rates, consider consolidating your debt with a balance transfer credit card or a personal loan.
“To consolidate, you can typically transfer your balances to a lower-interest product,” Macmillan said. “While many credit cards charge interest rates around 19.99 per cent, options like a line of credit, a low-interest credit card, a balance transfer card, or a Home Equity Line of Credit (HELOC) can significantly lower your interest rate, sometimes even to 0 per cent. By consolidating, you’ll pay less in interest and potentially pay off your debt faster.”
Debt consolidation will simplify your payments with just one regular payment, so you won’t have to juggle multiple dates and interest rates.
Banks such as RBC, TD Bank, BMO, Scotiabank, and credit unions offer balance transfer credit cards, debt consolidation loans, and personal loans. In addition, balance transfer cards usually offer 0 per cent or low interest rates for an introductory promotional period.
“They can help you consolidate debt with lower interest rates or provide a structured repayment plan,” advised Macmillan. “Certified financial planners (CFPs) or advisors are also able to provide personalized advice based on your specific financial situation and help you explore options like balance transfer credit cards, personal loans, or other consolidation methods.”
And the best part is that you can predict when your debt will be fully paid off.
Negotiate with your bank
You won’t know until you ask, so find out if your provider offers lower interest rates and negotiate in person or on the phone. Depending on your credit history and account standing, you might be able to negotiate a lower rate.
But if the bank refuses to budge, you can always switch to another provider or ask to transfer your balance to a low-interest credit card.
Focus on the long-term
Your credit score will improve as you pay off your credit card debt.
“Improving your credit score is an ongoing process, and you shouldn’t expect changes to happen overnight, even when being proactive,” said Macmillan.
Since credit scores update once a month, it can take 30 to 60 days for any changes to appear on your credit report, so it might take months to see changes. Defaults or missed payments can stay on your report for up to seven years, but their impact can be reduced with continued effort.
“As you consistently improve your credit habits, such as making timely payments and reducing debt, your score will gradually rise and reflect your progress,” she concluded.
