How to build a debt repayment plan

How to build a debt repayment plan

If you have debt, you’re not alone. The majority of Canadian adults owe money in some way, shape or form.

According to Statistics Canada, household debt continues to grow faster than income. At the end of 2018, the average Canadian household carried $1.79 in credit market debt for every dollar of disposable income.

However, what this consumer debt represents can vary drastically from person to person. To some, a debt might signify a major accomplishment or progress toward a large goal. To others, it might be a constant reminder of a time of crisis or hardship.

Regardless of your situation, there are some universal truths when it comes to debt: it’s stressful, it’s expensive and it limits the amount of money you can put toward your life goals.

As a result, debt repayment should be a top priority.

Watch as Jen learns about debt repayment from Dave the Debt Yeti.


If you’re a visual person, you might also find this Strategies for debt repayment infographic helpful.

>> Check out the infographic <<

There are three key steps to building a debt repayment plan:

1. Get organized 

Ready to design a debt repayment plan?

Start by listing all of your debts, including credit cards, student loans, auto loans, medical bills, mortgage and personal loans.

Then for each debt, write down:

  • The balance
  • The interest rate
  • The minimum payment.

2. Choose a strategy

The strategy you choose will affect the order in which you pay off your debts.

Here’s an overview of three key debt repayment strategies:

Debt repayment strategies

The Snowball method

How it works: You arrange and pay off debts from smallest balance to largest balance.

Who it’s for: This strategy is ideal for beginners or for those who rely on visible progress in order to feel motivated.

Why it’s great: Small debts are quickly crossed off your list, which can give you a confidence boost that helps you stick to your repayment plan.

Debt repayment strategies

The Avalanche method

How it works: You arrange and pay off debts from highest interest rate to lowest interest rate.

Who it’s for: Ideal for those who truly believe that slow and steady wins the race – this strategy requires discipline and determination.

Why it’s great: This strategy eliminates your most expensive debt first, making it the most mathematically powerful debt repayment option.

Debt repayment strategies


How it works: You take out a new loan and use the borrowed money to pay off all your other debts.

Who it’s for: Those who are having trouble keeping track of all their various debts and repeatedly missing payment due dates as a result.

Why it’s great: You only have one loan – and one interest rate – to keep track of; factor in any additional fees before choosing this option.

3. Make a plan

After choosing a strategy, solidify the steps of your monthly repayment plan:

  • Add ’em up: Add up all your minimum payments – you must have this total in your monthly budget in order to avoid additional fees.
  • Set a payment: Define an additional amount of money to put toward loan repayment every month – be generous and realistic.
  • Start at the top: The debt at the top of your list (which will vary, based on your chosen strategy) will receive its minimum balance plus the additional funds you determined in the previous step.
  • Make the minimums: The rest of the debts on your list will receive their minimum payments.
  • Increase your payment: When you pay off a debt, add its minimum payment to the repayment amount you previously determined.
  • Look for little extras: Challenge yourself to reduce your spending in one budget category each month. Put the savings toward your debt repayment fund. Switch the category every month to save some extra bucks without feeling deprived.

As you sequentially pay off your debts, you’ll have more money to apply to the next debt on the list.

Debt repayment requires action, some discipline and a lot of patience. Having a plan helps track progress and keeps you from getting discouraged.

Need advice?

We recommend that you talk to your financial institution to get more specific advice. You can talk to a wealth management professional at Vancity about options relating to your situation. Not a Vancity member? Open an account today.

This blog post provides general information only, and does not constitute financial, accounting, tax, legal or other professional advice. We encourage you to obtain personalized advice from qualified professionals regarding your particular circumstances. Please see our Terms of Use. 

Related topics: , ,
  • Was this helpful?
  • Yes   No