Make a clear list before choosing a repayment approach
by ICAN3
One bill has the highest interest rate. Another has the smallest balance. A third keeps calling. When several debts compete for attention, it can be hard to decide what to pay first.
Start by making the situation visible. You need a picture of what you owe, what is due, and what you can afford before a repayment method becomes useful.
The Financial Consumer Agency of Canada recommends identifying debts, reviewing income and expenses, and choosing a realistic repayment strategy. It describes options such as focusing on higher-interest debts or smaller balances. Those approaches serve different purposes, and neither removes the need to address urgent arrears or essential living costs.
Gather the basic facts
For each debt, record the creditor, balance, interest rate, required payment, due date, and whether it is overdue. Include instalment plans and money owed to family where relevant.
Use statements or verified account information rather than estimates when possible. If a balance or charge looks wrong, note the question and ask for clarification. Keep the list somewhere private and accessible.
Work out what the budget can carry
List income and essential expenses before promising extra repayments. A plan that repeatedly leaves you short for food or housing is unlikely to last.
Identify immediate risks, such as overdue housing costs or a possible utility disconnection, and seek appropriate help promptly. If you cannot cover required payments, contact creditors and a reputable adviser about options. Choosing a target debt alone will not resolve an unaffordable budget.
Compare two common approaches
With the highest-interest approach, you generally keep up required payments on all debts and direct affordable extra money toward the debt charging the highest rate. Under comparable terms, this can reduce interest costs.
With the smallest-balance approach, you keep up required payments and direct the extra amount toward the smallest debt. Clearing an account sooner can make progress easier to see, although it may cost more interest overall. Review fees and special terms before deciding.
Use a simple example
Imagine a fictional household with a $300 balance at 12 percent interest and a $1,500 balance at 24 percent. After essential costs and required payments, it has $40 available for extra repayment.
Targeting the $1,500 balance prioritizes the higher rate. Targeting the $300 balance prioritizes closing the smaller account. This example illustrates the choice; it does not calculate a payoff date, because required payments, interest calculations, fees, and future borrowing would affect the result.
Make the next month manageable
Choose one target and schedule a review after the next payment cycle. Keep a record of payments and check that they appear correctly. If income or expenses change, revisit the amount.
Be careful about services promising an easy or guaranteed escape from debt. Ask about fees, qualifications, and consequences before agreeing to help. Where debt is unmanageable, a reputable credit counsellor or Licensed Insolvency Trustee can explain relevant options within their role. You do not need to wait for the situation to become a crisis before asking questions.
Choose a recordkeeping method you can maintain. One page with payment dates and balances may be enough. If you share responsibility for a debt, agree on who checks the statement and who makes the payment. This avoids assuming the other person has handled it. Review the actual balance rather than judging progress only by how many payments you remember making.
Try this…
Complete your debt list and identify one uncertain item to clarify. Then calculate whether any money remains after essentials and required payments. If there is an affordable extra amount, choose a target. If there is a shortfall, make getting advice your first action instead of committing to an impossible repayment schedule.
