Getting Out of Debt: Four Steps To Help

| 10 min read Financial Assistance

Paying off large chunks of debt can feel like trying to summit Mount Logan in sandals. The average Canadian household’s debt-to-income ratio rocketed to 184.5% in the first quarter of 2023, making the journey to debt-free living feel especially long. 

Therefore, it’s no surprise that many people give up before covering any real ground, with Canadians, on average, owing nearly $1.85 for every dollar of disposable income.

Knowing how to get help with bills and how to get out of debt can be overwhelming, but we’re here to offer you hope and help you attack your debt head-on. This article outlines different types of debt and the strategies you can use to squash your bills once and for all.

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The main types of debt you should know

From medical emergencies to car wrecks, life can throw plenty of unplanned expenses at us. Below are the most common types of debt.

Credit card debt

Too many people aren’t sure how to pay off credit card debt. It can also be some of the toughest to pay down. When paying only the monthly minimum, high interest rates often add years to payment plans. 

This is more relevant now than ever before, as Canadians are increasingly turning to their credit cards to cover expenses. The average credit card balance for Canadians in the second quarter of 2023 was $4,185, up from $3,909.

Student loan debt

Discharging student loan debt is nearly impossible for most borrowers. After a six-month grace period following graduation, students must start repaying the loan at a fixed rate. This is a long, frustrating process for most, as the average student debt is over $26,000 for Canadian students.

If they can afford to do so, a student can pay off their student loan sooner by increasing their payments. Also, qualified doctors and nurses can apply for student loan forgiveness, which can save them thousands of dollars if they’re eligible.

For more resources on student loans and paying for school, take a look at these related blog posts:

Medical debt

Healthcare for Canadians is mostly covered by the country’s publicly funded health care system. However, there are some medical costs people need to cover themselves, such as dental care and prescription drugs. 

In fact, to cover the full cost of medical care, statistics show that the average Canadian household spends $2,000 on health care costs and $4,000 on private health insurance plans.

How to make a plan to get out of debt

Every successful goal starts with a plan. Thankfully, there are multiple resources available that show you how to get out of debt and create a budget for the first time. If you’ve ever wondered exactly how to get rid of debt but didn’t know where to start, we have four initial steps to help you.

1. Determine how much debt you have

Start by compiling all of your bills, making a note of interest rates, and listing everything in a spreadsheet. Knowing what you’re working with is half the battle.

The vast majority of debt in Canada consists of a mix of mortgages, car financing, loans, lines of credit, credit cards, and overdraft protection, so make sure you factor in all of these key areas to get the full picture.

This may seem like an arduous task, but it’s an essential step in the journey to being debt-free.

2. Figure out what you should pay first

It makes sense to start paying the debt with the highest interest rate first. However, if this will take you years to do, paying off a smaller debt much faster might give you the motivation to keep going. 

Try exploring a credit card calculator that will tell you how long it will take to pay off your credit cards, like this one from Debt.ca.

3. Lay out your budget and track spending

A good budget is everything when trying to pay down debt. Sticking to that budget is even more critical. These budget tips can help:

  • Pad your budget to account for extra expenses that inevitably crop up during the month.
  • Use a budget website or app like PocketGuard or YNAB to keep you on track.
  • Try the debt snowball method. Once you pay off one debt, roll that money over into the next debt you want to pay off.

4. Cut out the extras

Once you’ve laid out your budget and spending, categorize and prioritize your outgoings and cut anything you don’t deem to be important. It’s easy to forget about all the online subscriptions and services you have, so do a deep dive and unsubscribe from anything that isn’t a necessity. 

Approximately 19.3 million Canadians had a Netflix subscription in 2023, but how essential is it to watch every episode of Schitt’s Creek for the hundredth time? Similarly, do you need to be paying monthly for a gym membership when you only visit once every two months?

Three debt relief options to explore

Getting help with medical expenses, student loans, or credit cards isn’t always easy, but you don’t have to face your debt alone. Here are three ways to find help.

1. Loan and credit card consolidation

If you have multiple loans to pay every month and some or all of them have high interest rates, it may be worth looking into loan consolidation. When consolidating loans, a lender issues a single personal loan, typically with lower interest rates. 

Similarly, credit card debts can be paid off with a new credit card by consolidating debt onto one card. However, this doesn’t always work out as planned, as the new low rate may not apply to any new purchases you make.

The Credit Counselling Society offers free credit counselling, low-cost debt solutions, and education to Canadians seeking advice about their personal finances.

2. Credit counselling and debt relief services

If you’re wondering exactly how to get help with debt, credit counselling and debt relief services might be a good jumping-off point. Just be careful about which credit counselling or debt relief services you use, because not all of them are reputable. The Government of Canada offers helpful tips to avoid scams.

3. Crowdfunding

People have found that crowdfunding is a fast way to tackle their debt when unexpected circumstances set them back financially. Through GoFundMe, you can easily reach out to friends and family members and get back on your feet and out of debt. GoFundMe offers free fundraising, allowing you to keep more of the funds you raise.

Every situation is worthy enough for crowdfunding, and people from around the world, including Canada, use GoFundMe for causes both large and small. It’s important to remember that nearly everyone experiences a time in their life when they have to deal with some kind of financial hardship. Your own experience might serve as a reminder to people that everyone deserves to receive help during tough times.

Here are a couple of folks who were able to meet their fundraising goals through GoFundMe when they experienced a financial setback:

HELP A DISABLED FATHER KEEP HIS APARTMENT

Patrick started a fundraiser as a last-ditch effort to save his recently disabled father Andrew from homelessness, having suffered three strokes over 13 years. Andrew was laid off from his job after his second stroke in 2016 and was unable to regain employment due to damage inflicted on his brain.

In July of 2023, the third stroke partially paralyzed Andrew and left him in hospital for over two months. No income, no family support, and no way to pay rent put him in a difficult financial situation.

Patrick wasn’t sure how to get financial help, but then he discovered GoFundMe. People rallied around him, donating over $20,000 to help his dad cover his rent and household essentials for the foreseeable future.

Patrick said: “Thank you to everyone who helped give us another chance, you really made our year. This has been such a tough road, but now it certainly feels as if we have an army behind us.“

BREALYN’S BATTLE AGAINST LEUKEMIA

Shailagh turned to GoFundMe to start a fundraiser for very special friends of hers, Amber and her youngest daughter Brealyn. On October 9th 2023, Amber and her partner Kyle brought Brealyn to the hospital as she was very lethargic and had a high fever. One day later, Brealyn was diagnosed with Acute Lymphoblastic Leukaemia at just two years old. 

Facing a lot of new and unexpected expenses that come with medical treatments, Shailagh started a fundraiser to help alleviate some of the financial burdens resulting from the sudden diagnosis. 

By using GoFundMe, Shailagh has managed to receive $41,685 in donations for Amber and her family, surpassing the $25,000 goal she initially set.

Shailagh said: “Peace and love to you all and thank you from the bottom of my heart and theirs.”

Tips for running a successful fundraiser

When you start a fundraiser on GoFundMe, there are a few different ways you can really make it shine.

    • Fundraiser story: Once you’ve set up your GoFundMe and thought of a title and goal (which can be changed at any point), you need to write your fundraiser story. This is the place where you set out why you’re fundraising and why it is a cause that is important to you. Go into as much detail as you feel comfortable with – it’s these personal touches which may encourage people to donate. You can also personalise your fundraiser story with pictures and video.
    • Share on social media: Sharing on social media is a great way to get as many eyes as you can on your fundraiser. Post on your socials when you’ve set up the fund, but also when you have any updates too. Make sure to utilise those family and friend group chats to get the word out there!
    • Post updates: Posting updates is a really important way to keep your donors updated on what your doing, but also to keep your fundraiser looking active. Post an update each time you reach a fundraising goal, host an offline event or just have something you want to shout about.
    • Thank your donors: This is a really important one. Make sure to say thank you to your contributors. You can do this through your GoFundMe account or even better, by sending a personalised email or letter saying what their contribution means to you and your fundraising.

Feel empowered to tell your story and eliminate your debt

Thousands of people around the world and in Canada start fundraisers on GoFundMe every single day, so they can conquer their debt and the stress that goes along with it. You can find emergency financial assistance too. 

Take the next step in your journey to learning how to get out of debt and sign up for a fundraiser today.

Start a fundraiser

Written by Ved Khan