Debt Repayment

Debt Repayment Made Easy

August 2015

A few weeks ago Statistics Canada released the latest debt to income ratio of Canadian Households.  I knew the number was high but 163.3% still surprised me. That means the typical Canadian Household has $1.63 of debt for ever $1 they earn. The majority of our debt is in the form of mortgages, however roughly 28% or $519 Billion is in the form of consumer debt. With interest rates at record low levels I can see how car loans, credit cards, charge cards and other forms of consumer debt can pile up. At the moment with low interest rates a high level of debt is affordable. I believe we will be in a low interest rate environment for a while, however prudent debt management is still necessary. Even with low interest rates, like a snowball rolling down hill, consumer debt can quickly become a big problem.

Fortunately there are many free tools to help you manage and repay your debt. In fact we can use a similar analogy to describe the impact of a well managed debt repayment plan; it is like a snowball rolling down hill. The first step is to get organized. You need to keep track of all your debts: the amount owing, the interest rate and the minimum payment. If you have multiple debts, once you have them organized, I suggested you focus on repaying one debt at a time. I would start by focusing on the debt with the highest interest rate. For your debt with the highest interest set a fixed payment that you can realistically afford to make and that is higher than the minimum required payment. On your other debts simply pay the minimum. Once your highest interest rate debt is paid off redirect all the money you were paying against that debt to repaying your second highest rate debt. The total amount of money leaving your pocket is the same, but as each debt is paid off more money is shifted to pay off your next debt. Like a snowball rolling down hill, as each debt is paid off your repayment plan picks up speed.

In my experience I have found a repayment plan that attempts to pay down multiple debts at once is harder to maintain. It can feel like you aren’t making progress. Even though the total amount of money going to repay your debts is the same, by focusing on one debt at a time, you will pay that one debt off sooner and see tangible progress. In my opinion getting that emotional “win” each time a debt is paid off makes it easier to stick to the repayment plan.  is funded by the Ontario Securities Commission and has a number of great financial resources. Under the tools and calculators tab, you can click on calculators and can access credit card and debt repayment calculators. These tools will allow you to plug in the data from your debts and will show you detail by detail the merits of the debt repayment strategy mentioned above. You can see the snowball in action. With an effective strategy and monitoring tools, your debt repayment will be much easier.

If you feel your debt situation is dire, Credit Canada is a charitable organization that offers free debt counselling services.

Clinton Orr B.Comm (hons.), CIM, CFP, DMS, FMA  lives in Beausejour and is a portfolio manager with National Bank Financial.


This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use, and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity.  As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group.