You are here


How to Reduce Debt in Ontario

Man on the computer trying to pay off debts

The elevated household debt levels in Canada are causing many Ontarians to wonder how to reduce debt in Ontario. Although there isn’t a universal solution on how to reduce debt quickly, there are multiple tips and techniques you can implement that will help you break free from the shackles of debt.

Paying off debt takes time and discipline; after all, it likely took you a while to get into debt, and it’ll likely take some time to get out. But, don’t let that discourage you. The short-term sacrifices are well worth the freedom you’ll enjoy in the future. If you want to become debt free but aren’t quite sure how to get started, here are 8 things you can start doing right now.

1) Create a Realistic Budget

Before you start paying off debt, you need to understand how you got into debt in the first place, and the best way to do this is to create a realistic budget. Are you in debt because you’re spending too much? Is it because you’re not earning enough money to meet your basic expenses? Or perhaps it’s a combination of both? A budget will help you answer these questions.

Without a budget, you won’t know how much you can realistically afford for rent, groceries, and other expenses. And, if you don’t know how much you can afford, you’ll likely end up spending more than you mean to. This is why a budget is so helpful. It lays out what your expenses are for the month (including your debt payments), how much those expenses cost, and whether you have enough money to cover all those expenses. Once you know what you have to work with, you’ll be in a better position to start making good financial choices.

If you’re ready to learn how to create a budget, click here. We also have a budgeting tool that can guide you through the budgeting process to make budgeting as easy as possible.

A budget will help you stay on the straight and narrow with your current debt payments, and who knows? After reviewing your budget, you may realize that you can afford to make accelerated payments so you can get out of debt sooner than rather than later.

2) Track Your Spending and Identify Areas to Cut Back On

To get the most out of your budget, track your expenses for a month. Tracking your expenses is the key to a successful budget because it keeps you accountable for every dollar you’re spending, and it makes you more aware of your spending habits. To track your expenses, make a note of everything you buy over the course of a month, no matter how big or how small. That’s all there is to it!

It’s especially important to pay attention to those small, daily purchases. That morning latte, the lunches out, and the pack of gum at the grocery check-out all add up, and in the long run, they’ll affect your budget in big ways. Once you’re aware of your spending habits and you can see where (and how) you spend your money, start identifying areas you can cut back on.

For example, if you see that your morning coffee runs are costing you $50 a month, brew your own coffee at home instead and take it with you in a thermos. Instead of buying lunch, which can easily cost you $10 a day, cook larger portions at dinner and pack up leftovers to take to work the next day. There are lots of frugal alternatives you can substitute, and whatever money you free up through these cutbacks, you can put towards your debts.

3) Pay More Than the Minimum On Your Debts and Loans

Making only the minimum payment on your debts and loans will keep you out of collections, but it will also keep you in debt. If you want to reduce credit card debt, you’re going to have to start making more than just your minimum payments. With interest rates ranging from 15% - 25%, it will take you decades to clear your debt, and you’ll also end up paying many thousands of dollars in interest charges.

For example, if you have a $10,000 credit card debt at a 19% annual interest rate, it’ll take you over 35 years to pay off that debt if you were to only make the minimum payments. And over the course of those 35 years, you would have paid $19,000 in interest on a $10,000 debt. If you want to see how long it will take you to pay off your debt, you can use this handy debt repayment calculator.

If you can, bump up your monthly debt repayments by an extra $50 or so. As you pay down more of your principle, the less you’ll pay in interest and the sooner you’ll clear away your debt.  It can be difficult to find an extra $50 to put towards your debt payments, especially if you’re working with a tight budget, but just do the best you can. Try to cut back on your expenses (see above), and whatever money you’ve saved, put that towards your debt. If cutting back on your expenses hasn’t made as much of an impact as you had hoped, you can also look into different ways to increase your income, which we’ll discuss below.

Related: Where to Find Money to Save Each Month So You Can Pay Off Your Debt More Quickly

4) Increase Your Income by Getting a Second Job or a Side Gig

Increasing your income – whether through getting a second job, picking up extra shifts, or signing up for a freelance gig – is another great debt reduction technique. Getting a second job may not work for everyone’s life situation and schedule, but if you can manage it, getting a second job or setting up a side business could help you become debt free within a short number of years.

There are lots of different ways to increase your income. You could consider looking for a job that pays a bit more, or you could ask your current employer for a raise. Alternatively, if you can spare some time during the evenings or over the weekends, you could take on a part-time job. You could also increase your income by capitalizing on your skill sets. For example, if you’re a skilled writer you can consider freelancing articles or blog posts for media outlets, and if you’re crafty you can sell your handmade items at craft fairs or on Etsy.

You may be tempted to increase your spending once you see your monthly income rising, but try to resist the temptation. You’re taking on the extra work to pay off your debt, so make sure all your extra income goes towards your debt reduction plan.

Also, keep in mind that working the extra shifts or the extra hours doesn’t have to be permanent. Once your debts are paid off – or once your debt is at a manageable level – you can look at scaling back again.

5) Put Your Credit Cards on Ice

Put credit cards on ice to pay off debtStudies have shown that people who shop with a credit card tend to spend more than if they were to shop with cash. Credit cards are certainly more convenient to carry than cash, and swiping your card is less painful than handing over cash and watching it disappear into the cash register. But, this convenience also makes it easier for people to buy things they don’t necessarily need at prices they can’t afford.

If you want to reduce debt, stick to a cash budget and put your credit cards out of sight so you won’t be tempted to use them. When you head out to the grocery store or to the mall, take only the amount of cash you think you’ll need, and leave the credit cards at home. By doing this, you are learning how to separate your needs from your wants, and you’ll also protect yourself from the whims of impulse buying.

If you’re an online shopper, delete your credit card numbers from your profile to make paying for purchases slightly less convenient. This way, if you plan on making an online purchase, you’ll have to make the effort to move away from the computer and get your credit card. And, during these few minutes, you may come to the realization that you don’t really need the item after all.

You don’t have to cancel or cut up your credit cards, but do take them out of your wallet and store them somewhere safe so you won’t be tempted to use them until you’ve cleared out your debt. Some people actually freeze their credit cards in a block of ice in their freezer so that when they want to use the cards, they have to wait for the big block of ice to melt. In the time this takes, they have plenty of time to reconsider their decision to use the credit cards.

6) Downsize Your Lifestyle

A long-term solution to becoming – and staying – debt-free is to downsize your current lifestyle to something more frugal. Contrary to popular opinion, living frugally isn’t about pinching pennies and being stingy with your money. It’s about making smart spending choices that reduces your overall expenses, without impacting your lifestyle.

If you’re ready to downsize, start with the big-ticket items first, like vehicles. If your family has two cars, consider whether you could make do with just one. Most cities have great public transportation routes, and when the weather is nice you could consider walking or biking. If you decide to make do with one vehicle, this choice alone could save you about $9,000 a year, which will make a huge difference if you put it towards your debt. If two cars are necessary in your household, consider selling one of the cars for something more fuel efficient so you can save on the cost of gas.

If you live in a spacious apartment right in the city centre, consider downsizing to a smaller studio a bit further away from downtown. Although you may have to spend more time and perhaps more money on commuting, you’ll save hundreds, possibly thousands, of dollars on rent or mortgage payments.

From there, you could start to look at smaller, recurring expenses. For example, monthly magazine subscriptions, trips to the spa, and going out to the movies every Friday are all considered “wants” and should be scaled back (or completely eliminated) until you’ve paid off your debt.

If you can learn how to make do with less, you’ll increase your savings and you won’t spend yourself back into debt in the future. The key to downsizing is to ensure the cuts you’re making aren’t extreme, otherwise you won’t be able to sustain that lifestyle in the future.

Related: 25 Frugal Living Ideas So You Can Save Money and Pay Off Debt

7) Get a Debt Consolidation Loan

If you’re struggling to keep up with multiple debt obligations, a debt consolidation loan is something that may be able to help you get your head above water. In a nutshell, a debt consolidation involves taking out one loan, which you’ll then use to pay off all your current debts. Once your outstanding debts have been paid off, you’ll only have to make one payment towards your consolidation loan each month.

A consolidation loan typically has a lower interest rate than the credit cards you are consolidating, which will save you money in the long run. With the lower interest rate, your monthly minimum payment will be lower as well, which will make it easier for you to finance your monthly payments. Lastly, a debt consolidation loan also has the added benefit of making your bill payments a bit easier to manage. With only one bill payment to make each month, you can focus more of your time and energy on reducing your debt.

However, getting a debt consolidation loan will only help you get ahead if you’ve addressed the underlying behaviours that caused you to get into debt in the first place. Once you consolidate your credit card debts, you’ll be freeing up spending money on those cards unless you take the initiative to close those cards. If the cards remain open, the temptation is there to spend and you run the risk of charging up more debts on your card, on top of your consolidation loan debt. So for a debt consolidation loan to work, you really do need to change your old spending and saving behaviours, otherwise you may get yourself back into debt.

One important habit to get into when you’re consolidating is to set aside some money every month into a separate emergency savings account. If you’ve paid off your cards with a consolidation loan and you encounter a financial emergency down the road – such as an illness, a job lay-off, or expensive home repairs – you may have no choice but to put those expenses on credit if you don’t have enough cash to cover the costs. Having an emergency cash fund, no matter how small, can really make a big difference.

8) Speak With a Non-Profit Credit Counsellor to Learn How to Reduce Debt in Ontario

If you’re ready to learn more about how to reduce debt in Ontario, one of the best things you can do for yourself and your finances is to meet with an accredited, non-profit Credit Counsellor. A reputable Credit Counsellor will explain all of your available options, and they’ll equip you with the tools and knowledge you need to make the best choice for your situation.

Most credit counselling organizations also offer debt repayment programs, which can be a great alternative if you’re looking for other options on how to pay off debt fast. If you want debt relief but aren’t sure how to get started, contact your nearest non-profit credit counselling organization and make a free appointment to speak with one of their Credit Counsellors. Most organizations offer appointments in person and on the phone, and you won’t be under any obligation to do anything. They’re just there to help. The earlier you contact them, the more options you’ll have.

Become Debt-Free in the Future by Making Changes Now

If you’ve been one of the many people in Ontario who have been wondering how to reduce debt, the key to paying off debt is to start makin lifelong spending changes, rather than quick fixes that won’t last. Some short-term sacrifices will have to be made, but don’t let that discourage you. Whatever challenges you work through in the short term are well worth the financial freedom you’ll enjoy in the future. 


<< Back to the Blog main page